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Determinants of foreign capital flows: The experience of selected Sub-Saharan African countries

William Brafu-Insaidoo () and Nicholas Biekpe

Journal of Applied Economics, 2014, vol. 17, 63-88

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.

Keywords: international capital flows; financial liberalization (search for similar items in EconPapers)
JEL-codes: F2 F21 F3 F34 F4 F40 F41 F43 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:cem:jaecon:v:17:y:2014:n:1:p:63-88