Foreign Capital Flows and Industrial Output in Selected African Countries

Document Type : Research Paper

Authors

1 Department of Economics, Kogi State University, Anyigba, Nigeria

2 Department of Economics, Benue State University, Makurdi, Nigeria

3 Monetary Policy Department, Central Bank of Nigeria, Lagos, Nigeria

10.22059/ier.2024.369602.1007883

Abstract

African nations grapple with limited domestic resources due to low tax revenues and savings levels. This necessitated the need to examine cause of the negative implications and, then enhance the positive areas of the impact. The study aims to investigate how institutional quality moderates the impact of foreign financial flows on industrial output, focusing on these top recipients of foreign flows in Africa from 1992 to 2022. We use a panel autoregressive distributed lag modeling approach which is relevant in evaluating large cross-sections and periods. This allows us to account for both short and long-run dynamics as well as the interaction of capital flows variables and institutional quality. We find that, institutional quality has a mediating positive impact on foreign inflows to industrial performance of the selected countries. For instance, the PMG result for model without interaction shows that increase in FDI will lead to 3.473unit increase in industrial output in the long run. For the PMG model with interactions reveal that FDI and FPI exert 13.04unit and 125.4unit impact on industrial output. However, the impact appears to vary based on short and long-run dynamics. The ECM for both model without and with interactions are negatively significant at -0.246% and -0.241%. We equally documented the dynamics of the relationship using country-specific analysis and find similar outcomes exhibiting mixed outcomes across the both short and long-run periods. The findings shows that foreign capital flows perform better in an environment of quality institutions with a higher predictive power in the long-run.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 12 February 2024

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