THE IMPACT OF FOREIGN CAPITAL INFLOWS ON ECONOMIC GROWTH: POOLED MEAN GROUPANALYSIS FOR DEVELOPING COUNTRIES

This study attempts to include all foreign capital inflow variables to analyze their impact on economic growth of 21 developing countries for the period of 1990 to 2013. Modern econometric techniques are applied for data analysis including panel unit root test and pooled mean group (PMG) estimation for short-run and long-run analysis. The results indicate that inflows including net external debt and net official development assistance have significantly negative impact on economic growth of developing countries, while net foreign direct investment and net remittances have positive and significant impact on economic growth in the long-run. The negative sign of error correction term shows the convergence of the variables towards equilibrium in the long-run. The study highlights the need of allocation of foreign resources effectively and efficiently.