Foreign Capital Inflows and the Real Exchange Rate in Sub-Saharan Africa

This paper presents a short-run dynamic panel model for the relationship between aggregate net foreign capital transfers and the real exchange rate in twenty-four Sub-Saharan African countries. The results show that contrary to expectation, external inflows had a negative impact on the real exchange rate with a further implication that the domestic production of tradables need not be adversely affected by the anticipated inflow of the large additional capital required to reach the Millennium Development Goals in 2015.