factors, stronger institutions help pull gross flows into the region. The behavior of capital flows to SubSaharan Africa differs from those to the full sample of countries, industrial countries and non-SSA developing countries. In Sub-Saharan Africa, foreign direct investment and foreign aid are still the most dominant financial flows into the region. Portfolio investment inflows are not as large, given the underdevelopment of domestic financial markets (i.e. stock markets and domestic bond markets) in most Sub-Saharan African countries, however, they have seen an uptick among frontier economies in the region (e.g. Nigeria, Kenya, Senegal, among others).

The analysis of the determinants of capital flows suggests that in general pull and push factors are the driving forces of capital flows into the world —and, especially, non-SSA developing countries. In contrast, external factors are the main drivers of capital flows into Sub-Saharan African countries. For the full sample of countries, we find that better economic performance, sound general government primary balance, strong institutions, and a greater degree of financial openness attract gross flows in countries across the world. In the case of Sub-Saharan Africa, push factors such as foreign growth, global stock market uncertainty and US economic policy uncertainty help attract inflows to the region. In our empirical analysis, commodity terms of trade are a good instrumental variable of domestic growth; however, it did not show significance as an explanatory variable in the regression analysis. This can be explained by the differences in the cycles of oil prices and prices of minerals and metals, which can offset each other when they are incorporated into an aggregate index.

The major components of capital inflows in Sub-Saharan Africa are foreign direct investment and foreign aid (on average, 3.36 and 3.35 percent of GDP, respectively, in 2000–17), while remittance inflows account for 2.26 percent of GDP (World Bank 2018b). Among the three external shocks influencing the evolution and shifting of the structure of capital flows in Sub-Saharan Africa, the 2011–12 European sovereign debt crisis may have caused a larger decline in flows to Africa than the global financial crisis. For example, other investments inflows to Sub-Saharan Africa increased after 2007. Portfolio investments inflows remain relatively low because of the underdevelopment of domestic financial systems —i.e. the activities in those markets are very limited, especially among fragile countries. However, portfolio investment inflows increased after the global financial crisis in non-resource-rich and resource rich countries in the region. The behavior of capital inflows across Sub-Saharan African countries is heterogeneous, given the country differences in the size and structure of the economy, different availability of resources, level of development, and political systems and regulations.

We use annual data on total gross capital inflows for a sample of 136 countries (of which 45 countries are in Sub-Saharan Africa) from 1980 to 2017. Gross inflows are defined by the sum of foreign direct investment (FDI) inflows, portfolio investment (PI) inflows, and other investment (OI) inflows. We present the empirical results from IV estimation to control for the likely endogeneity of capital flows with instruments such as real output and the commodity terms of trade index. Our regressions include countryand time-effects.

The regression analysis presented in this paper examines the determinants of gross capital inflows and investigates the relative importance of global vis-à-vis domestic factors in driving gross inflows to the region. It is crucial to identify the key drivers of capital inflows because understanding these drivers will help design the policies that address the macro-financial risks arising from these flows. Therefore, the regression analysis estimates the importance of the drivers of gross capital inflows to the region. It distinguishes the role of these drivers in the different components of aggregate gross inflows, such as FDI, PI, and OI. The estimations are conducted for country groups according to their extent of natural resource 3