Private Capital Flows, Real Sector Growth and Institutional Quality in Africa

The article examines the interconnections between capital flows, institutions and real sector growth in Africa. We show that capital flows (foreign direct investment, private debt and equity) have no direct favourable impact on the real sector. Initial assessments show that countries with robust institutional frameworks can benefit significantly from capital flows, as institutions moderate the positive impact of capital flows on real sector growth. Our marginal effect analyses show that the impact of private capital on real sector components is dependent on the type of capital, sector and the percentile level on institutions, in some cases, at the 90th percentile. (c) 2020 John Wiley & Sons, Ltd.