Premium
Private Capital Flows and Economic Growth of Sub‐Saharan African Countries
Author(s) -
Alley Ibrahim
Publication year - 2015
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12162
Subject(s) - economics , per capita , gross domestic product , foreign direct investment , private capital , investment (military) , capital (architecture) , capital accumulation , monetary economics , macroeconomics , human capital , economic growth , population , geography , demography , archaeology , sociology , politics , political science , law
In theory, private capital flows (PCF) augment domestic capital for economic growth. In sub‐Saharan African (SSA) economies, foreign direct investment per capita (FDIC), portfolio investment per capita (PIC) and bank lending per capita (BLC) components of PCF grew inversely to gross domestic product per capita (GDPC). Previous studies have attributed this problem largely to recipient economies' structural features, with little attention paid to PCF shocks (sharp fluctuations from the equilibrium path). Employing annual data on 14 SSA countries from 1990 to 2013, this study estimated a neoclassical growth model to evaluate the effects of PCF shocks on the SSA countries' economic output and growth. The results showed that private capital flows positively affected economic output and growth, as hypothesized in theory. The effects of PCF shocks were negative, however, and are thus culpable for poor response of the region's economic performance to inflows of private capital.