QEH Working Paper Number 56 Time-Series Econometrics of the Real and Financial Effects of Capital Flows: Selected Cases in Africa and Southern Asia

Few studies address the real effects of international capital flows. Instead of a crosssectional design, this study exclusively examines time-series data from nine countries. Four cases – Nigeria, Zimbabwe, India, and Pakistan – produce evidence that either FDI or FPI adversely affect growth or savings rates, while two cases produce some evidence of a benevolent effect – Uganda and Sri Lanka. The data for Kenya, Zambia, and Bangladesh largely produce ambiguous results, and in fact, the vast majority of models across all cases indicate no significant relation. The preponderance of negative effects is largely consistent with the notion that lower income countries lack sufficient ‘absorptive capacity’ to harness foreign investment.