Do Capital Inflows Boost Growth in Developing Countries? Evidence from Sub-Saharan Africa

28 Pages Posted: 20 Apr 2016

See all articles by César Calderón

César Calderón

World Bank

Ha Nguyen

International Monetary Fund (IMF)

Date Written: June 9, 2015

Abstract

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.

Keywords: External Debt, Debt Markets, Economic Theory & Research, Capital Markets and Capital Flows, Industrial Economics, Capital Flows, Economic Growth

Suggested Citation

Calderon, Cesar A. and Nguyen, Ha, Do Capital Inflows Boost Growth in Developing Countries? Evidence from Sub-Saharan Africa (June 9, 2015). World Bank Policy Research Working Paper No. 7298, Available at SSRN: https://ssrn.com/abstract=2616556

Cesar A. Calderon

World Bank ( email )

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Washington, DC 20433
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HOME PAGE: http://www.worldbank.org/laceconomist

Ha Nguyen (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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