Determinants of International Capital Inflows to Sub-Saharan Africa: The Role of Digitalization and National Governance

As digitization and national governance are widely recognized for access to external finance, this article examines the combined effects of digitization, in particular information and communication technologies (ICTs) diffusion in terms of access, skills, and use, and the quality of governance on international capital flows (foreign direct investment [FDI] and remittances) in 41 sub-Saharan African (SSA) countries. Using the Generalized Method of Moments, the study demonstrates that stronger political and institutional governance is associated with higher FDI and remittances. Moreover, improved access to, skills in, and use of ICT contribute to increased FDI and remittances. The effectiveness of political and institutional governance mechanisms in attracting FDI is further enhanced when they are accompanied by increased use of and access to ICT. Similarly, the positive impact of good political governance on remittances is reinforced by improved access to ICT. Overall, the results underline that as ICT becomes more widely used in SSA countries, improving governance quality and digital development capacity can generate a synergistic effect that attracts higher volumes of FDI and remittances to these economies.