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Cross-border bank lending versus FDI in Africa's growth story

Author

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  • Jose Brambila-Macias
  • Isabella Massa
  • Victor Murinde

Abstract

We investigate the relative long run growth impact of each of the two main types of Africa's private capital inflows, namely Foreign Direct Investment (FDI) and Cross-Border Bank Lending (CROSSBANK). In addition to controlling for some factors (e.g. financial reforms and trade openness), we isolate the outcomes for four groups: (1) all the African economies; (2) all the African economies except the SANE (South Africa, Algeria, Nigeria and Egypt), which are considered Africa's growth dynamos; (3) natural resource countries, which include some of the SANE and (4) countries without a sizeable hydrocarbon endowment. Our evidence suggests that both FDI and CROSSBANK exert a positive impact on African countries as a whole; an interesting comparison is that consistently, the former has a larger impact than the latter. Moreover, the effect of CROSSBANK becomes negative when the sample is restricted to oil countries. Also, financial reforms have a positive impact on economic growth in nonoil countries, while they have no growth effect on oil countries. The importance of trade openness as a driver of economic growth is confirmed for all African countries.

Suggested Citation

  • Jose Brambila-Macias & Isabella Massa & Victor Murinde, 2011. "Cross-border bank lending versus FDI in Africa's growth story," Applied Financial Economics, Taylor & Francis Journals, vol. 21(16), pages 1205-1213.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:16:p:1205-1213
    DOI: 10.1080/09603107.2011.566179
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    Cited by:

    1. Inoue, Takeshi & Hamori, Shigeyuki, 2013. "Financial Permeation and Economic Growth: Evidence from Sub-Saharan Africa," MPRA Paper 53417, University Library of Munich, Germany.

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