Capital Inflows and Macroeconomic Policy in Sub-Saharan Africa

Abstract

During the last three years, there has been an expanding literature on private capital inflows to developing countries. In 1992 and 1993, attention focused on the rise in such inflows, their causes and nature. Gradually, it moved to their potential macroeconomic impact and the policy implications. In 1994 and 1995, following events in Mexico, it has concentrated on the sustainability of the inflows, and the policy implications of potential reversal. Virtually all of the studies have focused on Latin America, though some authors have also examined East Asian experiences. Analysis of Eastern Europe is extremely rare (Calvo, Sahay and Vegh, 1995; Griffith-Jones, 1995), and that of Mrica is virtually non-existent (with the notable exception of the excellent study by Asea and Reinhart, 1995). Even the most comprehensive recent analysis and survey of the literature (Fernandez-Arias and Montiel, 1995) has concluded that there is only impressionistic evidence of private capital inflows to sub-Saharan Mrica, where 'capital inflows have not materialized'. Mrica has continued to be analysed from the point of view that most of its capital inflows causing 'Dutch Disease' effects are aid inflows (see, for example, Younger, 1992). The key areas examined in the literature have been the scale and composition of private capital inflows, their causes and sustainability, their effects on macroeconomic stability, and their responsiveness to policy measures.