Impact of Capital Inflows on Economic Growth of Developing Countries

Chigbu Ezeji E., Ubah Chijindu Promise and Chigbu Uzoamaka S.
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Chigbu Uzoamaka S.: Department of Financial Management Technology, Federal University of Technology, Owerri, Nigeria

International Journal of Management Science and Business Administration, 2015, vol. 1, issue 7, 7-21

Abstract: This study examines the impact of capital inflows on economic growth of developing economies; the case of Nigeria, Ghana and India from 1986-2012. This is necessitated by the doubts being raised as whether the huge inflows of foreign capital in developing economies over the years have transmitted to real economic growth. Augmented Dickey Fuller unit root test was employed to evaluate the stationarity of the data, while Johansen Co-integration was used to estimate the long-run equilibrium relationship among the variables. The casual relationship was tested using Granger Causality, and Ordinary Least Square method was used to estimate the model. The findings reveals that capital inflows have significant impact on the economic growth of the three countries. In Nigeria and Ghana, foreign direct and portfolio investment as well as foreign borrowings have significant and positive impact on economic growth. Workers’ remittances significantly and positively related to the economic growth of the three countries. The enabling environment should be created in the developing countries to encourage more inflow of foreign investments and workers remittances. This will help in closing the savings-investment gap and encourage economic growth in these countries. The study signifies that capital inflows is indispensable in closing the savings-investment gap required for economic growth of developing countries.

Keywords: Foreign Capital Inflows; Foreign Direct Investments; Foreign Portfolio Investment; Foreign Aids; Workers’ Remittances; Foreign Borrowings and Economic Growth (search for similar items in EconPapers)
JEL-codes: M00 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:mgs:ijmsba:v:1:y:2015:i:7:p:7-21

DOI: 10.18775/ijmsba.1849-5664-5419.2014.17.1001

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