TY - JOUR
T1 - Private capital flows and economic growth in Africa
T2 - The role of domestic financial markets
AU - Agbloyor, Elikplimi Komla
AU - Abor, Joshua Yindenaba
AU - Adjasi, Charles Komla Delali
AU - Yawson, Alfred
PY - 2014/5
Y1 - 2014/5
N2 - This study examines the relation between private capital flows and economic growth in Africa during the period 1990-2007. We estimate the empirical relation with a panel Instrumental Variable Generalized Method of Moments (IV-GMM) estimator which allows for arbitrary heteroskedasticity and endogeneity. Decomposing private capital flows into its component parts, we find that foreign direct investment, foreign equity portfolio investment and private debt flows all have a negative impact on economic growth. Countries with strong domestic financial markets, however, benefit more by being able to transform the negative impact of private capital flows into a positive one. Private capital flows, thus, promote economic growth in the presence of strong domestic financial markets. These results suggest that strong financial markets are needed for private capital flows to impact economic growth positively. Our results are robust to the control of population size, savings, financial openness and institutional quality.
AB - This study examines the relation between private capital flows and economic growth in Africa during the period 1990-2007. We estimate the empirical relation with a panel Instrumental Variable Generalized Method of Moments (IV-GMM) estimator which allows for arbitrary heteroskedasticity and endogeneity. Decomposing private capital flows into its component parts, we find that foreign direct investment, foreign equity portfolio investment and private debt flows all have a negative impact on economic growth. Countries with strong domestic financial markets, however, benefit more by being able to transform the negative impact of private capital flows into a positive one. Private capital flows, thus, promote economic growth in the presence of strong domestic financial markets. These results suggest that strong financial markets are needed for private capital flows to impact economic growth positively. Our results are robust to the control of population size, savings, financial openness and institutional quality.
KW - Africa
KW - Capital flows
KW - Economic activity
KW - Financial markets
UR - http://www.scopus.com/inward/record.url?scp=84897867864&partnerID=8YFLogxK
U2 - 10.1016/j.intfin.2014.02.003
DO - 10.1016/j.intfin.2014.02.003
M3 - Article
AN - SCOPUS:84897867864
SN - 1042-4431
VL - 30
SP - 137
EP - 152
JO - Journal of International Financial Markets, Institutions and Money
JF - Journal of International Financial Markets, Institutions and Money
IS - 1
ER -