The effect of various capital flows on economic growth of developing countries

This study investigates the effectiveness of various financial flows on economic growth of 79 developing countries all around the world based on a panel of data for the period 1989-2009. The study examines financial flows such as domestic capital sources, foreign direct investment, foreign loans, foreign aid and remittances as well as other growth determinants including exports, employment and education. It uses panel regressions to estimate the impacts of financial flows and other variables on the rate of economic growth for the overall sample of countries as well as regional sub-samples. The estimations were carried out with both fixed and random effect methods. It also estimates the same effects for sub-samples of countries according to income classification. The results for all the estimations are similar to a large extent. They indicate that among the capital flows, the most influential determinant of growth is domestic capital sources. Foreign capital flows are found to make no significant or meaningful contribution to economic growth. Among the other determinants of economic growth, the variable export is found to be consistently and positively related to economic growth. --P. ii.