International Financial Integration and Growth in Developing Countries: Issues and Implications for Africa

This paper examines international financial integration, economic growth and the linkages between them, focusing on Africa. A central theme is the importance of distinguishing between policy based (de jure) indicators of integration and (de facto) indicators based on actual capital flows or stocks. The paper reviews trends in both sets of integration indicators and uses growth accounting to summarise key features of Africa's growth experience. The linkage between them is examined through an extensive review of recent literature as well as some new empirical evidence. The review finds little evidence relating de jure integration to growth, but this may reflect relatively uninformative available indicators. In contrast, the paper concludes that there is strong evidence associating FDI inflows with increased growth and that this relationship seems to hold for Africa.