Does External Financing drive Growth?

How the volume, composition, and volatility of capital inflows can have different impacts on real exchange rate and economic growth

From:
Foreign, Commonwealth & Development Office
Published
25 June 2018
Document Type:
Briefing
Theme:
Economic Growth
First published:
1 July 2016
Authors:
Combes, Jean-Louis, Kinda, T, Ouedraogo, R, Plane, P, Haidara, A and Samba Mamadou, O

Abstract

Evidence for the growth impact of capital inflows remains open to question. Capital inflows can directly support economic growth by relaxing constraints on domestic resources, but can also indirectly weaken growth by hampering competitiveness through a real appreciation of the exchange rate. This policy brief revisits the issue, focusing on a large sample of low- and middle-income countries. Drawing on a recent analytical paper, this brief discusses how the volume, composition, and volatility of capital inflows can have different impacts on real exchange rate and economic growth.

This work is part of the 鈥楩inancial Volatility, Macroprudential Regulation and Economic Growth in Low-Income Countries鈥� project

Citation

J-L. Combes, T. Kinda , R. Ouedraogo, P. Plane, O. Samba Mamadou, A. Haidara (2016) Does External Financing drive Growth? Fondation pour les 茅tudes et recherches sur le d茅veloppement international (FERDI) Policy Brief 153

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Published 25 June 2018
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