“Who Finances Whom? The Controversial Role of External Financial Resources in Africa”, Judit Kiss (IWE CERS, Hungary)

In contrast to the highly developed countries and some developing regions, Africa highly depends on external resources of financing development. According to the saving-investment gap concept, there is a significant gap between savings and investment rates. As domestic resources are limited and their mobilization is slow, the region should rely on external sources of finance (i.e., aid, export revenues, FDI, loans, and remittances) in order to close the finance gap. Despite the massive inflow of external resources, the 200 billion USD yearly financing gap still prevails. The outflow of financial resources from Africa in the form of profit repatriations, debt service, tax dodging, capital flight and illicit financial flow exceeds the inflow, suggesting that Africa is a bottomless barrel. The long-standing concept about the saving-investment gap does not provide a full explanation for the prevailing financing gap. The main research questions are as follows: (a) Why is there a permanent financing gap in Africa? b) Why does the outflow of financial resources exceed the inflow? c) What should be done to close the financing gap and solve the problem of financing development?

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