Capital Flows and Economic Growth: Does the Role of State Fragility Really Matter for Sustainability?

  • Temitope Joseph Laniran
Chapter

Abstract

Fragile states pose a dilemma for the development community at research, policy and practice levels. These countries present not only some of the most serious and urgent development needs in the world, but, the most difficult environments for conventional economic theories and assumptions. Recent periods has however witnessed growth in a significant number of these countries. This raises the concern of what drives the witnessed growth, and whether the manifestations of state fragility have implications for a fragile state. Interestingly, quite a lot of the existing models on economic growth (as an area of academic research) tend to be sightless of state fragility. This study therefore seeks to understand the significance of state fragility for economic growth, using Nigeria as a case. The study objective is achieved by introducing state fragility into a simple economic growth model and subjected to econometric time-series testing. The results are therefore presented in the paper and discussed in line with sustainable development.

Keywords

Capital flows Economic growth State fragility Sustainability 

JEL Codes

C32 F30 O43 

References

  1. Adams, S. (2009). Can Foreign Direct Investment (FDI) Help to Promote Growth in Africa? African Journal of Business Management, 3(5), 178.Google Scholar
  2. AERC. (2015). Growth in Fragile States in Africa: A Call for Proposals. Nairobi: African Economic Research Consortium.Google Scholar
  3. Akinlo, A. E. (2004). Foreign Direct Investment and Growth in Nigeria: An Empirical Investigation. Journal of Policy modelling, 26(5), 627–639.CrossRefGoogle Scholar
  4. Banerjee, A., Dolado, J., & Mestre, R. (1998). Error-Correction Mechanism Tests for Cointegration in a Single-Equation Framework. Journal of Time Series Analysis, 19(3), 267–283.CrossRefGoogle Scholar
  5. Bertocchi, G., & Guerzoni, A. (2012). Growth, History, or Institutions: What Explains State Fragility in Sub-Saharan Africa? Journal of Peace Research, 49(6), 769–783.CrossRefGoogle Scholar
  6. Besley, T., & Persson, T. (2011). Fragile States and Development Policy. Journal of the European Economic Association, 9(3), 371–398.CrossRefGoogle Scholar
  7. Call, C. T. (2011). Beyond the ‘Failed State’: Toward Conceptual Alternatives. European Journal of International Relations, 17(2), 303–326.CrossRefGoogle Scholar
  8. Choong, C.-K., Zheng, T. J., & Tiong, L. W. (2010). Foreign Aid, Policy Effectiveness and Economic Growth in Tanzania. IUP Journal of Applied Economics, 9(2), 46–60.Google Scholar
  9. Cilliers, J., & Sisk, T. (2013). Assessing Long-Term State Fragility in Africa: Prospects for 26 “More Fragile” Countries (ISS Monograph No. 188). Pretoria. Available at: http://pardee.du.edu/assessing-long-term-state-fragility-africa-prospects-26-%E2%80%9Cmore-fragile%E2%80%9D-countries#sthash.L7BXF58U.dpuf.
  10. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366), 427–431.CrossRefGoogle Scholar
  11. Dunteman, G. H. (1984). Introduction to Multivariate Analysis. Beverly Hills: Sage Publications.Google Scholar
  12. Engle, R. F., & Granger, C. W. (1987). Co-integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251–276. CrossRefGoogle Scholar
  13. Fund for Peace. (2015). Fragile States Index 2015: The Book. Washington, DC: Fund for Peace. Available at: http://library.fundforpeace.org/fsi15-report.
  14. Gyimah-Brempong, K., & Traynor, T. L. (1999). Political Instability, Investment and Economic Growth in Sub-Saharan Africa. Journal of African Economies, 8(1), 52–86.CrossRefGoogle Scholar
  15. Hamilton, J. D. (1994). Time Series Analysis. Princeton: Princeton University Press.Google Scholar
  16. Heinsohn, G. (2003). Sons and World Power: Terror in the Rise and Fall of Nations. Orell Füssli.Google Scholar
  17. Herzer, D., & Klasen, S. (2008). In Search of FDI-Led Growth in Developing Countries: The Way Forward. Economic Modelling, 25(5), 793–810.CrossRefGoogle Scholar
  18. Holden, J., & Pagel, M. (2013). Private Sector Development and Conflict, What Can Be Learnt from the Experience of Private Sector Development in Conflict and Post-conflict Countries? (pp. 8–9). EPS PEAKS, Helpdesk Request, Nathan Associates. London.Google Scholar
  19. Jalilian, H., Kirkpatrick, C., & Parker, D. (2007). The Impact of Regulation on Economic Growth in Developing Countries: A Cross-Country Analysis. World Development, 35(1), 87–103.CrossRefGoogle Scholar
  20. Jawaid, S. T., & Saleem, S. M. (2017). Foreign Capital Inflows and Economic Growth of Pakistan. Journal of Transnational Management, 22(2), 121–149.CrossRefGoogle Scholar
  21. Johansen, S., & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration—With Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210.CrossRefGoogle Scholar
  22. Kaplan, S. (2014). Identifying Truly Fragile States. The Washington Quarterly, 37(1), 49–63. https://www.start.umd.edu/gtd/faq/.CrossRefGoogle Scholar
  23. Kaplan, S. (2015). What the OECD Does Not Understand About Fragile States. Available at: http://www.fragilestates.org/2013/01/29/what-the-oecd-does-not-understand-about-fragile-states/ [11 November 2016].
  24. Klobodu, E. K. M., & Adams, S. (2016). Capital Flows and Economic Growth in Ghana. Journal of African Business, 17(3), 291–307.CrossRefGoogle Scholar
  25. Kodama, M. (2012). Aid Unpredictability and Economic Growth. World Development, 40(2), 266–272.CrossRefGoogle Scholar
  26. Laniran, T. J., & Adeniyi, D. A. (2015). An Evaluation of the Determinants of Remittances: Evidence from Nigeria. African Human Mobility Review, 1(2), 179–203.Google Scholar
  27. Lum, B., Nikolko, M., Samy, Y., & Carment, D. (2013). Diasporas, Remittances and State Fragility: Assessing the Linkages. Ethnopolitics, 12(2), 201–219.CrossRefGoogle Scholar
  28. Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107(2), 407–437.CrossRefGoogle Scholar
  29. Milliken, J., & Krause, K. (2002). State Failure, State Collapse, and State Reconstruction: Concepts, Lessons, and Strategies. Development and Change, 33(5), 753–774.CrossRefGoogle Scholar
  30. Moyo, D. (2009). Why Foreign Aid Is Hurting Africa. The Wall Street Journal, 21, 1–2.Google Scholar
  31. Munck, G. L. (2009). Measuring Democracy: A Bridge Between Scholarship and Politics. Baltimore: JHU Press.Google Scholar
  32. Munck, Gerardo L., & Verkuilen, J. (2002). Conceptualizing and Measuring Democracy. Comparative Political Studies, 35(1), 5–34.Google Scholar
  33. Nwachukwu, T. E., & Egwaikhide, F. O. (2007). An Error-Correction Model of the Determinants of Private Saving in Nigeria. Paper presented at the African Economic Society (AES) Conference, Cape Town, South Africa.Google Scholar
  34. Nwosa, P. I., & Akinbobola, T. O. (2016). Capital Inflows and Economic Growth in Nigeria: The Role of Macroeconomic Policies. African Development Review, 28(3), 277–290.CrossRefGoogle Scholar
  35. Odusanya, I. A., Logile, A. I., & Akanni, L. O. (2011). Foreign Aid, Public Expenditure and Economic Growth: The Nigerian Case. Journal of Applied Business Research, 27(3), 33–42.Google Scholar
  36. OECD. (2013). Fragile States 2013: Resource Flows and Trends in a Shifting World. Washington, DC: OECD, Paris International Monetary Fund (IMF). Available at: www.imf.org/external/pubs/ft/wp/2004/wp0495.pdf.
  37. OECD. (2015). States of Fragility 2015—Meeting Post-2015 Ambitions. Paris. Available at: http://www.oecd.org/dac/states-of-fragility-2015-9789264227699-en.htm.
  38. Ouattara, B. (2004). Foreign Aid and Fiscal Policy in Senegal. Manchester: Mimeo University of Manchester.Google Scholar
  39. Pesaran, M. H., & Shin, Y. (1999). An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. In S. Strom (Ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press.Google Scholar
  40. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289–326.CrossRefGoogle Scholar
  41. Phillips, P. C., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75(2), 335–346.CrossRefGoogle Scholar
  42. Sanusi, S. L. (2012). The Role of Development Finance Institutions in Infrastructure Development: What Nigeria Can Learn from BNDES and the Indian Infrastructure Finance. Presented at 3rd ICRC PPP Stakeholders Forum, July (Vol. 18), Lagos, Nigeria.Google Scholar
  43. Schneckener, U. (2004). States at Risk. Fragile Staaten als Sicherheits-und Entwicklungsproblem. Berlin: SWP-Studie. Google Scholar
  44. Sy, A. (2014). Shifts in Financing Sustainable Development: How Should Africa Adapt in 2014? In Foresight Africa (p. 25). Washington, DC: The Brookings Institution.Google Scholar
  45. Wamboye, E., Adekola, A., & Sergi, B. S. (2014). Foreign Aid, Legal Origin, Economic Growth and Africa’s Least Developed Countries. Progress in Development Studies, 14(4), 335–357.CrossRefGoogle Scholar
  46. World Bank. (2015). Global Economic Report. Washington, DC: The World Bank. Available at: http://www.worldbank.org/content/dam/Worldbank/GEP/GEP2015b/Global-Economic-Prospects-June-2015-Sub-Saharan-Africa-analysis.pdf.

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Temitope Joseph Laniran
    • 1
  1. 1.Bradford Centre for International DevelopmentUniversity of BradfordBradfordUK

Personalised recommendations