External Financial Flows, Policies and Growth in Sub-Saharan Africa

Abstract

Despite the relatively mild external capital inflows, Sub-Saharan Africa is still bewildered with high rate of poverty, income inequality and decline in per capita income. Using panel data from 1981-2011 and applying Generalized Method of Moments (GMM) approach in SSA, the study shows that FDI inflows contribute more to economic growth compared to  remittances; and ODA is positively and significantly related to growth. However, the interaction of external inflows and policy index yields opposite results. Specifically, FDI and remittance are insignificant and negatively related to growth while ODA is positive and significantly related to growth. The study concludes that for ODA to impact favourably on growth, monetary, fiscal and trade policies should be properly formulated and implemented, though, FDI and remittance are not affected by these policies.