Capital Inflows and Human Development in Sub-Saharan Africa

By: Ali David & Ogbuagu Anuli Regina

Pages: 40–61, Volume: 3, Number: 2

Published by: AEFUNAI Journal of Economics, Finance and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, 8/1/2026, 2026

ISSN (Electronic): 2536-6742

DOI:

Capital Inflows and Human Development in Sub-Saharan Africa

Abstract:

This study examines the relationship between capital inflows and human development in seventeen Sub-Saharan African (SSA) countries from 1990 to 2022. Human development is measured using the Human Development Index (HDI), which captures improvements in income, health, and education. The study employs panel econometric techniques, specifically the Driscoll–Kraay fixed-effects estimator with time dummies to correct for heteroskedasticity, autocorrelation, and cross-sectional dependence. The Two-Stage Least Squares (2SLS) technique is also used as a robustness check to address potential endogeneity. The study examines the effect of important capital inflows like foreign direct investment (FDI), remittances, and official development assistance (ODA) on human development. The findings show that remittances have a positive and statistically significant impact on human development, implying that migrant transfers contribute significantly to better welfare outcomes. In contrast, foreign direct investment has a negative but statistically insignificant effect on human development, while official development assistance has a significant negative impact. The findings do not support the hypothesis of a nonlinear relationship between ODA and human development. In conclusion, the developmental impact of capital inflows in SSA is determined by the type of inflow and the efficiency with which these resources are employed.

Keywords: Capital inflows, Human development, Remittances, Foreign direct investment, SSA