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Capital inflows and economic growth nexus in Sub-Saharan Africa: evidence on the role of institutions

Zinzile Lorna Ndiweni and Lumengo Bonga-Bonga ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper assesses the relationship between international capital inflows and economic growth in developing economies. We employ methods of threshold regression to examine whether capital flows have different effects in developing economies with weak institutions as compared to those with good institutional infrastructure.. Our findings show that a threshold effect exists in the capital inflows and growth nexus. More precisely, the results obtained demonstrated that the impact of capital inflows on economic growth is positive and significant once a defined threshold level of institutional quality has been exceeded. At any point below that threshold level, the capital inflows-growth relationship appears to be non- existent. These results support the notion of the capital inflows and growth relationship being contingent on the level of institutional development in an economy. Therefore, providing vital policy implications for policy makers and government in ensuring the improvement of a country’s institutional environment with the purpose of enhancing economic growth through capital flows.

Keywords: Capital inflows; economic growth; institutional quality; threshold regression (search for similar items in EconPapers)
JEL-codes: C13 C51 F3 F43 (search for similar items in EconPapers)
Date: 2021-03-17
New Economics Papers: this item is included in nep-fdg and nep-gro
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