The relationship between external financial flows and economic growth in the Southern African Development Community (SADC) : the role of institutions
CITATION: Mingiri, K. F., Ikhide, S. I. & Tsegaye, A. 2016. The relationship between external financial flows and economic growth in the Southern African Development Community (SADC) : the role of institutions. Journal of Economics and Behavioral Studies, 8(1):87-103.
The original publication is available at https://ifrnd.org/journal/index.php/jebs
The study examined the relationship between external financial flows, domestic savings and economic growth in the SADC region for the period from 1980 to 2009 specifically looking at the role played by institutions. The majority of countries in the SADC region are experiencing low levels of savings, which has led to them relying more on external financial flows to bridge the gap between domestic demand for finance and domestic supply. However the relationship between external finance and economic growth is still a contentious issue. Given this, the study has thus examined the link between growth and external finance in the region, specifically focusing on the impact of the different forms of external financial flows on economic growth in the region incorporating the role played by institutions. The empirical results revealed that three types of external financial flows have a significant impact on economic growth in the SADC region except ODA; however when all the different types of external financial flows were interacted with the measure of institutions, they all become significant and more enhanced in explaining economic growth in the region. This supports the hypothesis that good institutions are necessary in promoting economic growth in developing countries. The empirical results also suggest that foreign capital is another channel through which a crisis in developing countries can be transmitted to the SADC region.