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This study investigated the effect of international financial inflows on
productive capacities in Africa from 2010 -2022. Panel data robust standard error
analytical technique and Generalized Method of Moments (GMM) were deployed
to test for the effects of foreign direct investment (FDI), remittances (REM), and
official development assistance (ODA) on productive capacities (PCI) in Africa with
special focus on countries from different regions in Africa. Data for the analysis
was sourced from the World Bank Development Indicator (WDI) and the United
Nations Conference on Trade and Development (UNCTAD). The result showed
that foreign direct investment harms productive capabilities in northern Africa but
exerts a positive effect in the eastern and southern African regions. Remittances
are statistically significant and have a positive effect on productive capacities only
in eastern Africa. Official development assistance is also statically significant and
exerts a positive effect on productive capacities in northern and eastern Africa.
However, the effect of ODA in southern Africa is negative. The generalized method
of moments results for the four regions revealed that foreign direct investment exerts
a negative effect on productive capacities while remittance contributes significantly
to productive capacities within Africa. Following the findings, the study concluded
that international financial inflows play an important role in boosting productive
capacities in Africa. The study therefore recommended governments of various countries to create an enabling environment and formulate policies that would
stimulate foreign financial inflows especially remittances to strive.
