Effects of Foreign Capital Flows on Economic Growth in the Countries of the Economic Community of Central African States

Abstract

The objective of this paper is to analyze the impact of capital flows (FDI and REM) on the economic growth of ECCAS countries, while addressing a gap in the regional literature through the explicit integration of the moderating role of governance. The empirical analysis is based on panel data covering 11 ECCAS countries over the period 1990–2024, using the Generalized Least Squares (GLS), Driscoll–Kraay, and Generalized Method of Moments (GMM) estimators.

The estimates confirm that both types of capital flows significantly stimulate economic activity. Remittances exhibit a positive coefficient ranging from 0.161 (p < 0,1) to 0,214 (p < 0,05) according to the Driscoll–Kraay estimator, reaching 0.422 (p < 0,05) under GLS and 0,602 (p < 0,05) with dynamic GMM. Similarly, FDI shows a positive elasticity ranging from 0.115 (p < 0,05) to 0,352 (p < 0,01) under GLS, reaching 0,142 (p < 0,10) with GMM and 0,233 (p < 0,10) under Driscoll–Kraay.

The moderation analysis, however, reveals that while institutions do not directly alter the effect of remittances, the interaction between FDI and the rule of law has a negative and statistically significant effect (−0,011; p < 0,10), suggesting that the marginal spillover effect of FDI is stronger in institutional environments undergoing transition.

In light of this complexity, the study recommends moving away from generic investment attraction policies and instead reducing transfer costs to channel diaspora savings toward productive investments, while adapting FDI regulations to the actual level of rule-of-law maturity in order to maximize their local impact without hindering private initiatives.

JEL code : F21, F22, O16, O43

Paper type : Empirical Research