Economic Report on Africa 2006: capital flows and development financing in Africa

Abstract

This year’s Economic Report on Africa (ERA 2006) places capital flows at the center of the debate on development financing and examines how these flows can help African countries to accelerate growth and reduce poverty. The objective is to shed light on whether and to what extent more and better managed capital flows will help African countries achieve their development goals. The report first presents evidence on the recent and medium-term macroeconomic performance of African economies. It then evaluates the trends and volatility of capital flows and their effects on economic growth. Next, it explores the linkages between capital flows and domestic factor markets – labor markets and investment – with a view to drawing lessons on strategies to harness the effects of foreign capital on host economies. The report also explores the potential of capital flows in promoting diversification of production and exports and in facilitating the overall transformation of African economies. It further examines the role of domestic conditions, including the macroeconomic policy framework and the institutional environment, in both attracting and absorbing capital flows.