Macroeconomic effects of capital flow structure in sub-saharan Africa

The influence of capital flows on the macroeconomic stability has been a great concern and examining the effect is of great importance to the macroeconomic policies and risk aversion measures in the recipient countries. Therefore, this study quantitatively analyzed the influences of the capital flows on growth rate of output and inflation rate using several Structural Vector Autoregressive (SVAR) models. The study found that the capital flows have inconclusive effects on output and inflation in the selected African countries from 1985Q1 to 2015Q4. In addition, FDI inflows account for about 20 percent of the macroeconomic fluctuations in the sample period whereas FDI outflows contribute almost 9 percent. The FDI inflows contribute nearly 17 percent fluctuations in Nigeria’s economic growth, and 18 percent of unstable inflation rate in Burkina Faso. On the other hand, 3 percent of fluctuations in the growth of Nigerian economy is explained by its FDI outflows against 0.5 percent in other countries.