Capital mobility in Sub-Saharan Africa : a panel data approach

03 Oct 2007

In this paper we are primarily concerned with assessing the degree of capital mobility in sub-Saharan Africa. Using the methodology as proposed by Feldstein and Horioka (1980)-later termed the "Feldstein-Horioka puzzle"-we test the hypothesis of perfect capital mobility against the alternative of imperfect capital mobility. Following Vamvakidis and Wacziarg (1998) and Isaksson (2000), provision is made in our model to show the dependency of the lesser-developed countries on international finance and aid and how a more open economy contributes towards improving the level of capital movement in these countries. We also assess the change in the degree of capital mobility over the time period in an effort to see whether institutional and political changes have been successful. We show that, compared to the region, South Africa is, to a large extent, more developed and should therefore play a leading role in the "African Renaissance".