Assessment of the impact of foreign capital flows on economic growth in Algeria

Abstract

Purpose. This study aims to measure and assess the impact of foreign capital flows, including foreign direct investment, external loans, foreign aid, and remittances from migrants, as independent variables on real GDP as a dependent variable in Algeria during the period 1990–2021 using the Autoregressive Distributed Lag (ARDL) time series regression model. Results. The study found the existence of a long-term relationship between the selected economic variables and their impact on real GDP in Algeria, both in the short and long term. Additionally, there is a positive effect of both independent variables representing foreign direct investment and migrant remittances on real GDP. However, there is a negative impact of external loans on real GDP, which can be explained by the misallocation of these loans, with a significant portion directed towards non-productive sectors, negatively affecting the long-term economic growth in Algeria. Scientific novelty. The primary contribution of this study is its comprehensive elucidation of all major forms of foreign capital flows to Algeria and their impact on the Algerian economy, including FDI, foreign aid, external loans, and remittances. This is important because different types of foreign capital flows have different effects on the Algerian economy. In addition, the evolution of foreign capital flows to Algeria over a long period of time, from 1990 to 2021, is studied. This made it possible to identify trends and patterns in foreign capital flows that may not be apparent in short-term studies. Practical value. The results of this study can help policymakers to design policies that maximize the benefits of foreign capital flows while minimizing the risks. And Foreign capital flows can play an important role in helping Algeria to address these challenges and achieve its economic development goals.