Capital Mobility: Theory and Evidence for Sub-Saharan African Countries

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In this paper the researcher is primarily concerned with assessing the degree of capital mobility in Sub-Saharan African countries. By applying the methodology as proposed by Feldstein and horioka (1980), later termed the "Feldstein- hoioka puzzle", the researcher tests the hypothesis of perfect capital mobility against the alternative of imperfect capital mobility. The provision is made in this model to show the dependency of the lesser developed Sub-Saharan African countries on international finance and aid and how a more open economy contributes towards improving the level of capital movement in these countries. The researcher also assess the change in the degree of capital mobility over 'the time period in an effort to test whether institutional and political changes have been successful or not. Stationary panel data estimation techniques are applied for the sample of 25 Sub-Saharan African countries over the time period 1988-2003. The benefits of using one-way error component models are derived from simultaneously by employing time and cross-section dimensions of the data, resulting in a substantial increase in the degrees of freedom. The fixed and random effects models enable us to acknowledge country heterogeneity within the panel, making provision for differences across countries like capital control policies, financial and capital market structures and exchange rate regimes.



African Countries, Capital Mobility, Theory and Evidence