The Impact of Foreign Capital Inflows on Economic Growth in Sub-Saharan Africa: New Empirical Insights from Pooled Mean Group Estimation

Abstract

The study investigates how foreign capital inflows influence the economic growth of Sub-Saharan Africa. The Pooled Mean Group estimation technique is employed to conduct the analysis, utilizing data spanning 27 years. The findings indicate that foreign direct investment contributes positively, while foreign aid negatively impacts economic growth in the long-run. However, remittances show an insignificant impact. Control variables, including institutional quality, human capital, and the labor force, yield a positive and significant effect. In the short-run, only foreign aid shows weak significance, while other variables are insignificant. Therefore, Sub-Saharan African governments should better use their economies’ capacity to accommodate remittances.