Determinants and effectiveness of external finance on growth and development in Sub-Sahara Africa (SSA): A review of the literature

Abstract

Sub-Saharan Africa (SSA) faces substantial development funding gaps and significant socio-economic challenges. To overcome these funding gaps and achieve the many developmental goals, many SSA countries rely on external funding modalities, specifically foreign direct investment (FDI) and foreign aid inflows. The literature on foreign aid, FDI and economic growth yields a myriad of studies – with contradicting findings – on the effectiveness of external finance in improving development outcomes. The impact of foreign aid on growth and development in SSA has been scrutinised given the low development and growth observed despite significant aid flows to the region. Conversely, FDI in SSA, attributed to increased investment and growth, is considered largely beneficial. Given that the literature presents conflicting findings, this study provides a comprehensive reassessment of (i) the determinants of FDI and foreign aid, and (ii) the effectiveness of FDI and foreign aid overall, with specific focus on SSA through the systematic review of literature from 1960 to 2020. According to the findings of this study, the main determinants of FDI flows to SSA are trade openness, human capital development and infrastructure development. Ambiguity exists regarding the role of economic growth, governance, and natural resource endowments in attracting FDI. Key drivers of foreign aid to SSA include institutional stability, and historical and cultural ties with donor countries. The findings for economic growth, human capital development and altruistic motives as drivers of foreign aid yielded mixed results. As far as the effectiveness of FDI and foreign aid in SSA is concerned, FDI improves economic growth, productivity, trade, and human capital development, while its impact on governance and the environment has been negative. Foreign aid enhances economic growth, governance, education, and health variables in SSA. Substantial foreign aid has been provided to SSA countries and this has fostered dependence on such flows to overcome capital deficiencies. It is recommended that policy makers target FDI and foreign aid programmes which align to the short-term and long-term socio-economic needs of SSA economies.

Afrika suid van die Sahara (SSA) word deur beduidende sosio-ekonomiese uitdagings en wesenlike gapings in ontwikkelingsbefondsing gekonfronteer. Om hierdie befondsingsgapings te oorbrug en die vele ontwikkelingsdoelwitte te bereik, maak baie SSA-lande staat op eksterne befondsingsmodaliteite – spesifiek buitelandse direkte investering (BDI) en invloeie van buitelandse hulp. Die literatuur oor hulp uit die buiteland, BDI en ekonomiese groei omvat ’n magdom studies met teenstrydige bevindinge oor die doeltreffendheid van eksterne finansiering om ontwikkelingsuitkomste te verbeter. Die impak van buitelandse hulp op groei en ontwikkeling in SSA is noukeurig ondersoek gegewe die lae ontwikkeling en groei wat waargeneem is ten spyte van beduidende hulp wat aan die streek verleen is. Omgekeerd word BDI in SSA, wat aan verhoogde investering en groei toegeskryf word, grotendeels as voordelig beskou. Met inagneming daarvan dat die literatuur teenstrydige bevindinge aandui, bied hierdie studie ’n omvattende herassessering van (i) die determinante van BDI en buitelandse hulp, en (ii) die doeltreffendheid van BDI en buitelandse hulp oor die algemeen, met spesifieke fokus op SSA deur die sistematiese oorsig van literatuur van 1960 tot 2020. Volgens die bevindinge van hierdie studie is die hoofdeterminant van BDI-vloeie na SSA handelsoopheid, ontwikkeling van menskapitaal en ontwikkeling van infrastruktuur. Daar is dubbelsinnigheid oor die rol van ekonomiese groei, beheer, en begiftiging van natuurlike hulpbronne in die lok van BDI. Sleutelaandrywers van buitelandse hulp aan SSA sluit institusionele stabiliteit, en historiese en kulturele bande met skenkerlande in. Die bevindinge vir ekonomiese groei, ontwikkeling van menskapitaal en altruïstiese motiewe as aandrywers van buitelandse hulp het gemengde resultate gelewer. Wat die doeltreffendheid van BDI en buitelandse hulp in SSA betref, verbeter BDI ekonomiese groei, produktiwiteit, handel, en ontwikkeling van menskapitaal, terwyl die impak daarvan op beheer en die omgewing, negatief was. Hulp uit die buiteland verbeter ekonomiese groei, beheer, opvoeding, en gesondheidsveranderlikes in SSA. Wesenlike buitelandse hulp is aan SSA-lande verleen, en dit het afhanklikheid van sodanige vloeie laat ontstaan om kapitaaltekorte te oorkom. Daar word aanbeveel dat beleidsbepalers BDI en buitelandse hulpprogramme teiken wat in lyn met die korttermyn- en langtermyn- sosio-ekonomiese behoeftes van SSA-ekonomieë is

Aforika e e kwa borwa jwa Sahara (SSA) e lebagane le tlhaelo e e boitshegang ya tlamelo ya matlole a tlhabololo le dikgwetlho tse di bonalang tsa ikonomiloago. Go fenya tlhaelo eno ya tlamelo ya matlole le go fitlhelela bontsi jwa maikemisetso a tlhabololo, dinaga tse dintsi tsa SSA di ikaega ka mekgwa ya tlamelo ya matlole go tswa kwa ntle, bogolo segolo peeletsotlhamalalo ya dinaga tse dingwe (FDI) le go amogela thuso ya dinaga tse dingwe. Dikwalo tsa thuso ya dinaga tse dingwe, FDI le kgolo ya ikonomi di tlhagisa dithutopatlisiso tse dintsi tse di nang le diphitlhelelo tse di ganetsanang malebana le nonofo ya tlamelo ya ditšhelete go tswa kwa ntle go tokafatsa dipoelo tsa tlhabololo. Ditlamorago tsa thuso ya dinaga tse dingwe mo kgolong le tlhabololo mo SSA di sekasekilwe thata ka ntlha ya tlhabololo le kgolo e e kwa tlase e e lemogilweng le fa go ntse go na le kelelo e e bonalang ya thuso mo kgaolong. Fa go buiwa, FDI mo dinageng tsa SSA, e e akgolelwang dipeeletso le kgolo e e tokafetseng, e tsewa e le mosola thata. Ka ntlha ya gore dikwalo di tlhagisa diphitlhelelo tse di ganetsanang, thutopatlisiso eno e tlamela ka tshekatshekosešwa ya (i) diswetsi tsa FDI le thuso ya dinaga tse dingwe le (ii) bokgoni jwa FDI le thuso ya dinaga tse dingwe ka kakaretso, go totilwe dinaga tsa SSA ka tshekatsheko e e rulaganeng ya dikwalo tsa go tloga ka 1960 go fitlha 2020. Go ya ka diphitlhelelo tsa thutopatlisiso eno, diswetsidikgolo tsa kelelo ya FDI go ya kwa dinageng tsa SSA ke go bulega ga kgwebisano, tlhabololo ya badiri le tlhabololo ya mafaratlhatlha. Go na le ketsaetsego malebana le seabe sa kgolo ya ikonomi, bolaodi, le ditlamelo tsa tlholego malebana le go ngokela FDI. Ditsamaisi tse dikgolo tse di ngokelang thuso ya dinaga tse dingwe mo dinageng tsa SSA di akaretsa go tsepama ga ditheo, le dikgolagano tsa hisetori le setso le dinaga tse di abang. Diphitlhelelo tsa kgolo ya ikonomi, tlhabololo ya badiri le maikaelelo a go thusa kwa ntle ga boitebo jaaka ditsamaisi di tlhagisitse dipholo tse di tlhakatlhakaneng. Malebana le bokgoni jwa FDI le thuso ya dinaga tse dingwe mo dinageng tsa SAA gone, FDI e tokafatsa kgolo ya ikonomi, tlhagiso, kgwebisano, le tlhabololo ya badiri, fa ditlamorago mo bolaoding le tikologo tsona di sa siama. Thuso ya dinaga tse dingwe e tokafatsa kgolo ya ikonomi, bolaodi, thuto, le boitekanelo mo dinageng tsa SSA. Go tlametswe ka thuso e e bonalang ya dinaga tse dingwe mo dinageng tsa SSA mme seno se bakile gore go nne le go ikaega mo tlamelong eno go fenya ditlhaelo tsa matlole. Go atlenegisiwa gore badiradipholisi ba tote FDI le mananeo a thuso ya dinaga tse dingwe a a lepalepaneng le ditlhokego tsa pakakhutshwane le tsa pakatelele tsa diikonomi tsa dinaga tsa SSA