Foreign capital flow, institutional quality and human capital development in sub-Saharan Africa

Figures & data

Table 1. Cross sectional Independence

Test	Pesaran		Friedman		Frees
	CD test	ρ-value	CD	ρ-value	CD (Q)	ρ-value
RE Model	0.467	0.6406	13.738	0.9987	2.629	0.465
FE Model	0.600	0.5487	16.604	0.995	2.958	0.465

FE and RE stand for fixed effects and random effects models, respectively. ρ-value significance at 1% level.

Table 2. Analysis of unit root and multicollinearity

Variable	LLC	Fisher-ADF	IPS	VIF	1/VIF
HDI	−9.995(0.000)	138.099(0.000)	−3.043(0.000)	-	-
REM	−67.061(0.000)	140.992(0.000)	−2.363(0.001)	1.51	0.661706
FDI	−6.846(0.000)	195.038(0.000)	−2.904(0.002)	1.42	0.706627
ODA	−7.010(0.000)	100.793(0.000)	−2.961(0.000)	1.71	0.585973
CPIA	−6.943(0.000)	101.567(0.000)	−1.893(0.003)	1.07	0.937846
GEEH	−9.299(0.000)	131.168(0.000)	−2.042(0.002)	1.04	0.959957
PGR	−17.524(0.000)	248.964(0.000)	−2.459(0.001)	1.41	0.710816

Note. ρ-values are in parentheses

Table 3. Summary statistics for the research variables

Variable	Obs	Mean	Std. Dev.	Min	Max
Human development index (HDI)	374	0.489	0.079	0.304	0.796
Remittances(%GDP)	374	3.728	3.543	0.073	16.285
Foreign direct investment(%GDP)	374	4.416	4.082	0.238	20.971
Official development assistance(%GDP)	374	7.381	4.951	0.073	21.142
CPIA	374	2.763	0.578	1.000	4.000
Government expenditure on education and health(%GDP)	374	5.618	1.357	2.762	10.930
Population growth rate (% annual)	374	2.567	0.642	0.182	3.8471

Table 4. Regression results

HDI	Model 1.	Model 2.	Model.3	Model 4	Model. 5
L1.	.862(0.018)**	.859(0.018)**	.853(0.018)**	.853(0.018)**	.850(0.018)**
CONSTANT	025(0.015)	.017(0.015)	.021(0.015)	.020(0.015)	.021(0.015)
GEEH	.002(0.001)**	.002(0.001)**	.002(0.001)**	.002(0.001)**	.002(0.001)**
PGR	−.004(0.002)**	−.004(0.002)**	−.005(0.002)**	−.004(0.002)**	−.004(0.002)**
REM	.004(0.001)**	.004(0.001)**	.003(0.001)**	.003(0.001)**	.003(0.001)**
FDI	.003(0.001)**	.002(0.001)**	.003(0.001)**	.003(0.002)**	.003(0.001)**
ODA	−.007(0.003)**	−.008(0.003)**	−.007(0.003)**	−.006(0.003)**	−.005(0.003)**
CPIA	-	.004(0.002)**	.005(0.002)**	.005(0.002)**	.004(0.002)**
REM*CPIA	-	-	.006(0.003)**	.006(0.003)**	.006(0.002)**
FDI*CPIA	-	-	-	.007(0.002)**	.007(0.002)**
ODA*CPIA	-	-	-	-	.001(0.001)
No.instruments	51	52	53	54	55
No. groups	34	34	34	34	34
Post-estimation analysis
Arellano-Bond:AR(1)		0.052
Arellano-Bond:AR(2)		0.128
Sargan test (p-val)		0.445
Hansen test (p-val)		0.740

Notes: system-GMM estimations for dynamic panel-data models. HDI, human development index; GEEH, Government expenditure on education and health; PG, population growth rate; REM, remittances; FDI, foreign direct investment; ODA, official development assistance; CPIA, country policy and institutional assessment; Standard error in the parenthesis; **Significant at 5 per cent level

Table A1. Description of variables and measurement

Variable	Definition
Human Capital Development	Human capital development is measured using the Human Development Index. The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living. The HDI is the geometric mean of normalized indices for each of the three dimensions UNDP (2021).
Foreign Direct Investment (FDI)	“Foreign direct investment refers to direct investment equity flows in an economy. It is the sum of equity capital, reinvestment of earnings, and other capital. Direct investment is a category of cross border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Ownership of 10 percent or more of the ordinary shares of voting stock is the criterion for determining the existence of a direct investment relationship. This series shows net outflows of investment from the reporting economy to the rest of the world. Data are in current U.S. dollar” (Word Bank, 2021).
Remittances	“Personal remittances comprise personal transfers and compensation of employees. Personal transfers consist of all current transfers in cash or in kind made or received by resident households to or from nonresident households. Personal transfers thus include all current transfers between resident and nonresident individuals. Compensation of employees refers to the income of border, seasonal, and other short-term workers who are employed in an economy where they are not resident and of residents employed by nonresident entities. Data are the sum of two items defined in the sixth edition of the IMF’s Balance of Payments Manual: personal transfers and compensation of employees” (Word Bank, 2021).
Official Development Assistance	“Net official development assistance (ODA) consists of disbursements of loans made on concessional terms (net of repayments of principal) and grants by official agencies of the members of the Development Assistance Committee (DAC), by multilateral institutions, and by non-DAC countries to promote economic development and welfare in countries and territories in the DAC list of ODA recipients. It includes loans with a grant element of at least 25 percent (calculated at a rate of discount of 10 percent). Data are in current U.S. dollars” (Word Bank, 2021).
Institutional Quality	“Transparency, accountability, and corruption in the public sector assess the extent to which the executive can be held accountable for its use of funds and for the results of its actions by the electorate and by the legislature and judiciary, and the extent to which public employees within the executive are required to account for administrative decisions, use of resources, and results obtained. The three main dimensions assessed here are the accountability of the executive to oversight institutions and of public employees for their performance, access of civil society to information on public affairs, and state capture by narrow vested interests.” According to World Bank institutional quality is measured by CPIA which is an indicator of transparency, accountability, and corruption in the public sector rating (1 = low to 6 = high; Word Bank, 2021).
Population Growth	“Annual population growth rate for year t is the exponential rate of growth of midyear population from year t-1 to t, expressed as a percentage. Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship” (Word Bank, 2021).
Government expenditure on education and health	A percentage which represents total expenditure on education and health (current and capital) undertaken by the State, over GDP. It includes government spending on educational institutions (both public and private), education administration, and subsidies for private entities (students/households and other private entities). Source: (Word Bank, 2021)

United nations Development Programme (UNDP) (2021). Human Development Index (HDI). Available at: http://www.hdr.undp.org/en/content/human-development-index-hdi (Accessed on April, 15).

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Word Bank. (2021). https://www.worldbank.org/en/news/press-release/2021/11/17/remittance-flows-register-robust-7-3-percent-growth-in-2021. Accessed on 11th December, 2021

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