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Determinants of Foreign Capital Flows: The Experience of Selected Sub-Saharan African Countries

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  • William Gabriel Brafu-Insaidoo
  • Nicholas Biekpe
Abstract
This study investigates the major determinants of international capital flows in selected countries in Sub-Saharan Africa. Both theory and the empirical literature suggest that financial liberalization and regionalism lead to higher levels of capital inflows. By using a dynamic panel data analysis, this research tests these hypotheses. The impact of financial liberalization depends on the type of liberalization implemented. Liberalization of the domestic financial system and the domestic equity market has a positive and significant impact on international capital flows. Aggregate capital account liberalization is not significant, but the elimination of multiple exchange rates significantly affects international capital flows, while other components have a more limited impact: the liberalization of inward FDI directly increases foreign direct investments, whilst the deregulation of offshore borrowing directly causes an increase in foreign debt inflows. Regionalism causes an increase in foreign direct investment inflows but does not affect other forms of capital inflows.

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  • William Gabriel Brafu-Insaidoo & Nicholas Biekpe, 2014. "Determinants of Foreign Capital Flows: The Experience of Selected Sub-Saharan African Countries," Journal of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 63-88, May.
    • Handle: RePEc:taf:recsxx:v:17:y:2014:i:1:p:63-88
    DOI: 10.1016/S1514-0326(14)60003-9
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    2. Konstantin Makrelov, 2019. "Capital flow reversal and impacts through the financial sector," Occasional Bulletin of Economic Notes 9479, South African Reserve Bank.
    3. Nyang`oro Owen, 2017. "Working Paper 285 - Capital Inflows and Economic Growth in Sub-Saharan Africa," Working Paper Series 2409, African Development Bank.
    4. Sèna Kimm Gnangnon, 2020. "Trade Openness and Diversification of External Financial Flows for Development: An Empirical Analysis," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 22-57, June.
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    7. Mouna Gammoudi & Mondher Cherif, 2016. "Capital Account Openness, Political Institutions And Fdi In Mena Region: An Empirical Investigation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(2), pages 53-76, June.
    8. Assad Ullah & Muhammad Anees & Zahid Ali & Muhammad Ayub Khan, 2018. "Economic Freedom and Private Capital Inflows in Selected South Asian Economies: A Dynamic Panel Data Evidence," South Asian Journal of Business and Management Cases, , vol. 7(1), pages 41-52, June.
    9. Konstantin Makrelov & Rob Davies & Laurence Harris, 2021. "The impact of capital flow reversal shocks in South Africa: a stock- and-flow-consistent analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 35(3-4), pages 475-501, July.
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    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F3 - International Economics - - International Finance
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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