Do Capital Inflows Boost Growth in Developing Countries?
This paper examines whether domestic output growth helps attract capital inflows and, in turn, capital inflows help boost output growth in a set of 38 Sub-Saharan African countries. Using a two-step approach to address reverse causality and omitted variable issues, the paper finds that output growth in countries in Sub-Saharan Africa does not attract capital inflows. However, aid and foreign direct investment inflows enhance growth, while sovereign debt inflows do not. A 1 percent increase in the level of real aid inflows raises growth of real output per capita by 0.022 percentage point. For foreign direct investment inflows, the figure is 0.002 percentage point.
Summary: | This paper examines whether domestic
output growth helps attract capital inflows and, in turn,
capital inflows help boost output growth in a set of 38
Sub-Saharan African countries. Using a two-step approach to
address reverse causality and omitted variable issues, the
paper finds that output growth in countries in Sub-Saharan
Africa does not attract capital inflows. However, aid and
foreign direct investment inflows enhance growth, while
sovereign debt inflows do not. A 1 percent increase in the
level of real aid inflows raises growth of real output per
capita by 0.022 percentage point. For foreign direct
investment inflows, the figure is 0.002 percentage point. |
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