Financial Flows, Economic Integration and Macroeconomic Performance in Selected African Countries

Articles in Press

Document Type : Research Paper

Authors

1 Department of Economics, Faculty of Social Sciences, Federal University, Ekiti State, Nigeria

2 Department of Economics, Faculty of Social Sciences, University of Lagos, Lagos, Nigeria

10.22059/ier.2024.376514.1008008

Abstract

Financial flows can directly promote macroeconomic performance by mitigating shortages in domestic investment funds. However, they can also indirectly depreciate performance through weaker economic integration. Specifically, the study aims to i) compute an index of macroeconomic performance  ii) examine the impacts of foreign direct investments (FDI), remittance and official development assistance (ODA) on macroeconomic performance in Africa. iii) determine the impacts of interest rate differentials and intra-African trade on macroeconomic performance in Africa. It employed System-Generalized Method of Moments (sys-GMM) and Panel Autoregressive Distributed Lag (PARDL) techniques on panel dataset of 37 African countries covering 1995 to 2021 period. This study developed its theoretical foundation from the Augmented Neoclassical theory. The research findings reveal that financial flows indicators such as remittance and ODA exert positive impacts, while FDI has negative impact on macroeconomic performance. Also, the impacts of economic integration indicators such as intra-African trade and interest rate differentials exert negative impacts on macroeconomic performance. The results of the sys-GMM are validated by the PARDL outputs. The research is unique because it computed an index for macroeconomic performance as well as disaggregated impacts of financial flows and economic integration indicators; hence, generating more robust empirical results. Therefore, it recommends policy formulations aimed at attracting and retaining financial flows longer to enhance macroeconomic performance. More so, gaps in interest rate differentials should be bridged in order to stimulate higher financial flows which promotes macroeconomic performance in Africa.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 02 October 2024

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