Capital Inflows and Domestic Investment in Sub-Saharan Africa

Samuel Adams, Daniel Sakyi and Eric Opoku

Foreign Trade Review, 2016, vol. 51, issue 4, 328-343

Abstract: The issue of whether capital inflows promote domestic investment has been of major concern especially in developing countries considering their massive dependence on these inflows. To this end, we make a case for 25 sub-Saharan African countries, using foreign direct investment and external debt as proxies for capital inflows, and the pooled mean group estimator over the period 1981–2010. The results reveal that foreign direct investment positively impacts domestic investment, but external debt has a negative impact on domestic investment in the long run. This implies that increase in foreign direct investment and/or reduction in external debt will promote domestic investment in sub-Saharan Africa. Therefore measures have to be put in place to attract more foreign direct investment and reduce the inflow of external debt in the region.

Keywords: Foreign direct investment; external debt; domestic investment; pooled mean group; cointegration; sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: C23 F21 F34 O55 P33 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:fortra:v:51:y:2016:i:4:p:328-343

DOI: 10.1177/0015732516650820

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