Capital Inflows, Institutional Quality and Economic Growth: Empirical Evidence From Oil Exporting African Countries.

Abstract

The study investigates the effect of capital inflows and institutional quality on economic growth in eight oil exporting African countries using FGLS and AMG methods to analyse the data spanning from 1996 to 2020. It was observed that foreign direct investment, external debt and official development assistance present no significant influence on economic growth. Institutional quality has a positive and significant influence on economic growth. When institutional quality was interacted with the various capital inflows, it only had influence on external debt as the interaction between institutional quality and external debt revealed a significant effect but did not spur economic growth. The study therefore concluded that capital inflows have no effect on economic growth. Consequently, the study recommends that, for oil exporting African countries to reduce the risks and uncertainties inherent with foreign direct investment, good institutions must be set up and made to work, long-term economic growth and fiscal and debt sustainability must be emphasized, and finally, aid should be provided based on achieved policy levels rather than promises of improvement in order to boost foreign aid effectiveness.