The Role of Property Rights in the Relationship between Capital Flows and Economic Growth in SSA: Do Natural Resources Endowment and Country Income Level Matter?

This paper studies the role played by the quality of property rights in the linkages of international capital flows into sub-Saharan African (SSA) economies. Using panel data of 36 SSA countries over the period 1996-2015 and the ARDL procedure with the Pooled Mean Group regression method appropriate for non-stationary panel data estimation, we account for the joint effects of property rights quality and openness to foreign capital flows on economic growth. We uncover the existence of a property rights quality threshold beyond which property rights either amplifies the spillovers effects or attenuates the negative effect of capital flows on economic growth. For instance, it takes a level of property rights of at least 60 to have a positive long-term impact of capital flows on economic growth in natural resource-poor African countries. The quality of property rights matters more to obtain spillover effects of capital flows on growth in natural resource-poor countries than in their peer natural resource-rich countries. Finally, with regard to the countries' income levels, capital flows have significant long-term spillovers effects on economic growth in advanced African economies than in their low-income peers.