Capital Mobility: Theory and Evidence for Sub-Saharan African Countries
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Date
2006-07
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A.A.U
Abstract
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.
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Keywords
African Countries, Capital Mobility, Theory and Evidence