A Pooled Mean Group Estimation of Capital Inflow and Growth in sub Saharan Africa

Chimere Okechukwu Iheonu
Godfrey Ikechukwu Ihedimma
Matilda Chinonyerem Omenihu
JEL codes: 
B23 - Econometrics; Quantitative and Mathematical Studies, C10 - General, C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series.
This study empirically analysed the impact of capital inflow on growth in sub Saharan Africa employing the Pooled Mean Group estimator from the years 1985 to 2015. The study utilised Foreign Direct Investment (FDI), Official Development Assistance and Foreign Aid (ODA) and Remittance (REM) as indicators of capital inflow. Short run result indicates that the various forms of capital inflow do not have significant impact on growth but while FDI and REM were negatively related to growth, AID was positively related to growth. However, in the long run, FDI and AID have a positive and significant impact on growth while REM has a negative and significant impact on growth in sub Saharan Africa. The study concludes that planning and legislative lags are inferential from the insignificance of capital inflows on growth in the short run, while growth falls in the long run as a result of increase in labour’s income earned in diaspora. The study recommends that in the short run, economic policies should be tailored towards the development of technological based services while in the long run, government should create schemes for citizens in diaspora to participate in, to endear sector-specific economic activities as well as targeting FDI and AID as policy options to spur growth. Finally, specific capital inflow policy options should be employed as not all forms of capital inflow precipitates growth.
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