Capital Inflows and Domestic Investment in Sub-Saharan Africa: Evidence from Pooled Mean Group (PMG) Estimation Approach

Samuel Adams, Daniel Sakyi, Eric Evans Osei Opoku

Research output: Journal PublicationArticlepeer-review

10 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)328-343
Number of pages16
JournalForeign Trade Review
Volume51
Issue number4
DOIs
Publication statusPublished - Nov 2016
Externally publishedYes

Keywords

  • C23
  • F21
  • F34
  • Foreign direct investment
  • O55
  • P33
  • cointegration
  • domestic investment
  • external debt
  • pooled mean group
  • sub-Saharan Africa

ASJC Scopus subject areas

  • Business and International Management
  • Marketing
  • Economics, Econometrics and Finance (all)

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