Drivers of Gross Capital Inflows: Which Factors are More Important for Sub-Saharan Africa?

This paper discusses recent trends and investigates the drivers of capital flows across regions in the world, with emphasis on Sub-Saharan Africa. The post-global financial crisis behavior of capital flows into Sub-Saharan Africa is unique and differs from that of global capital flows. The structure of financial flows into Sub-Saharan Africa has shifted toward new sources, such as international bond issuances and debt inflows from non?Paris Club governments. The main message is that the behavior of capital flows into Sub-Saharan Africa differs from that of capital flows into global, industrial, and non?Sub-Saharan African developing countries. The regression analysis reveals that gross flows into Sub-Saharan African are predominantly influenced by external factors, such as foreign growth and uncertainty in global markets and policies. Capital flow behavior for Sub-Saharan African countries is different from that of industrial countries due to different economic structures, which render different transmission processes. The main findings suggest that pull and push factors are the driving forces of capital inflows for industrial countries and non?Sub-Saharan African developing countries?especially better economic performance, sound fiscal outcomes, a greater degree of financial openness, and stronger institutions. The impact of these drivers has become stronger in the 2000s. Macroeconomic policy can play an important role in attracting capital inflows. For instance, fiscal discipline promotes greater other investment inflows, and less flexible exchange rate arrangements (more exchange rate stability) foster portfolio investment inflows.


Policy Research Working Paper 8777
This paper discusses recent trends and investigates the drivers of capital flows across regions in the world, with emphasis on Sub-Saharan Africa. The post-global financial crisis behavior of capital flows into Sub-Saharan Africa is unique and differs from that of global capital flows. The structure of financial flows into Sub-Saharan Africa has shifted toward new sources, such as international bond issuances and debt inflows from non-Paris Club governments. The main message is that the behavior of capital flows into Sub-Saharan Africa differs from that of capital flows into global, industrial, and non-Sub-Saharan African developing countries. The regression analysis reveals that gross flows into Sub-Saharan African are predominantly influenced by external factors, such as foreign growth and uncertainty in global markets and policies. Capital flow behavior for Sub-Saharan African countries is different from that of industrial countries due to different economic structures, which render different transmission processes. The main findings suggest that pull and push factors are the driving forces of capital inflows for industrial countries and non-Sub-Saharan African developing countries-especially better economic performance, sound fiscal outcomes, a greater degree of financial openness, and stronger institutions. The impact of these drivers has become stronger in the 2000s. Macroeconomic policy can play an important role in attracting capital inflows. For instance, fiscal discipline promotes greater other investment inflows, and less flexible exchange rate arrangements (more exchange rate stability) foster portfolio investment inflows. This paper is a product of the Office of the Chief Economist, Africa Region. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/research. The authors may be contacted at mkubota@worldbank.org.

Introduction
The evolution of global capital flows has been influenced by three recent global shocks: the 2008-09 global financial crisis, the 2011-12 euro sovereign debt crisis and the 2014 drastic drop in oil prices. The impacts of these three shocks on capital inflows to Sub-Saharan Africa (SSA) have transmitted differently compared with advanced countries, non-SSA developing counties and the world. Recent trends in gross capital flows into Sub-Saharan Africa have changed because the structure of financing in the region has shifted from lower cross-border loan disbursements owed to traditional creditors to more direct investment and international bond issuances. Figure 1.1 illustrates the evolution of gross capital inflows across the globeand, notably, inflows to Sub-Saharan Africa, advanced countries, and non-SSA developing countries from 1990 to 2017. One feature that emerges from this figure is the massive entry of gross capital flows to the world, Sub-Saharan Africa, advanced and non-SSA developing countries from the year 2000.
Global capital flows as well as capital flows into advanced countries and non-SSA developing countries experienced a sharp decline during the global financial crisis period, while Sub-Saharan Africa followed a different path. This evidence is consistent with our empirical finding that the behavior of capital flows to Sub-Saharan Africa and natural resource abundant countries are alike, while that of global capital flows (as well as flows into industrial and non-SSA developing countries) behave differently relative to Sub-Saharan African countries. Moreover, the evolution of capital flows into Sub-Saharan Africa might be understated due to the occurrence of illicit flows. 1 This is one of the silent phenomena in Sub-Saharan countries: for instance, cumulative net errors and omissions exceeds 10 percent of gross domestic product (GDP) for the region as a whole during 2002-17, consequently, a large portion of the capital flowing into a country is not recorded and exits the economy (Figure 2). Although an important issue in the region, the analysis of illicit flows is beyond the goal of this paper. The focus in this paper is the analysis of the behavior of recorded gross capital inflows.
The three large external shocks (2008-09 global financial crisis, the 2011-12 European sovereign debt crisis and the 2014 drastic drop in oil prices) have played a role in shifting the current structure of financial flows toward greater other investment inflows (captured by rising liabilities from non-Paris Club members) and portfolio investment inflows that reflect greater international bond issuances. For example, the 2008-09 global financial crisis and 2011-12 European sovereign debt crisis led Sub-Saharan Africa to look for other financing opportunities in non-Paris Club governments such as China and private creditors. Many economies in Sub-Saharan Africa historically had strong ties with industrial countries, especially European countries; however, these two crises caused changes in their financing structure. At the same time, an increase in the international supply of crude oil, due to greater production from non-Organization of the Petroleum Exporting Countries (OPEC) countries (such as the Russian Federation) and technological innovation in the U.S. shale oil industry, triggered a drastic drop in oil prices that started in the second half of 2014. Consequently, many Sub-Saharan African countries, especially oil and commodity exporters, had to seek funds to finance larger deficits, and hence accumulated debts. The favorable financing conditions due to lax monetary policies (quantitative easing) in industrial countries enabled Sub-Saharan African countries to demand greater external borrowing from other sovereigns (non-Paris Club countries) and private creditors in foreign currency and at lower interest rates.
The main message of this paper is that the occurrence and interplay of the external shocks reshaped the composition of capital inflows and the structure of financing in Sub-Saharan African. Push factors matter to Sub-Saharan Africa in attracting capital inflows. Although their impact is not as robust as that of push 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 abundance; fragility, conflict, and violence; and income. 2 We also examine whether the sensitivity of capital flows to global vis-à-vis domestic factors has changed in the post-crisis period. The capital flows data are gross capital inflows, which capture not only the real channels, but also the financial channels of transmission of shocks. Consequently, gross inflows would identify the different channels (real vs. nominal variables) because net and gross inflows have significantly diverged since the mid-1990s (i.e. net flows, a mirror of the current account, are more reactive to real shocks, while gross flows are influenced by both nominal and real variables).
Despite the heterogeneity of economic structures and composition of flows across Sub-Saharan African countries, the empirical analysis provides some major directions for African economic development. These results suggest effective priorities and focus on sustainable development in the region. What policy recommendations would result from the regression analysis for the region? It is important to diversify the economic and export structure to mitigate the output effects of volatility in oil and commodity prices, develop domestic financial markets that provide domestic financial instruments to attract investors, and implement policies that enhance the business environment and create investment opportunities for foreign and domestic investors. According to the empirical evidence, financial openness would attract all types of capital inflows; therefore, a priority should be to develop the domestic financial markets in Sub-Saharan Africa. FDI and foreign aid are the main sources of financing in some countries in the region -especially where public sector participation in the economy is larger than private sector business activity. Therefore, policies that improve the business environment for domestic private sector firms will foster sustained foreign financing in productive activities.
Our main empirical results suggest that the behavior of capital flows across Sub-Saharan African countries is unique: differences in the economic structure of countries vis-à-vis industrial countries may help explain the different transmission channels on the impact of external factors on gross capital inflows. On the other hand, both pull and push factors help explain gross capital inflows to countries across the world and the impacts of these drivers have become much stronger in the 2000s. Greater financial openness has facilitated the entry of gross capital inflows in the 2000s. Trade openness, on the other hand, worked as a complement of capital flows before 1999 and has turned into a substitute from the year 2000 -especially, a substitute of FDI inflows. Macroeconomic policy plays a role in attracting capital inflows. For instance, fiscal discipline promotes greater gross other investments inflows and less flexible exchange rate arrangements (more exchange rate stability) fosters portfolio investments inflows.
Our paper consists of the following sections: Section 2 overviews the trends in gross capital inflows in Sub-Saharan Africa. Section 3 describes the data and econometric methodology. Section 4 investigates the relationship between capital inflows and the main macroeconomic variables, using mean/standard deviation equality tests and regression analysis. Section 5 concludes.

Trends in International Financing Flows in Sub-Saharan Africa
This section overviews the recent trends in gross capital inflows and the structure of financing in Sub-Saharan Africa. It focuses on the 2000s, when gross and net capital flows started to diverge significantly. The behavior of capital flows in Sub-Saharan Africa has followed a different path from that of other countries. The global financial crisis severely influenced the behavior of global capital inflows. Although the global financial crisis and the European sovereign debt crisis affected Sub-Saharan Africa, the latter 5 event had a larger impact on foreign financing in Sub-Saharan Africa. Oil and commodity prices are the third key factor that might have influenced the evolution of capital flows across African economies, as FDIcommodity related channels of transmission appear to have been more important than financial channels in Sub-Saharan Africa: almost 80 percent of FDI flowed into resource-rich countries and those FDI projects were mainly commodity related.
The evolution of gross capital inflows to Sub-Saharan Africa did not comove strongly with that of global capital flows or gross inflows into either advanced countries or non-SSA developing countries in the first half of the 2000s (Figures 1.1 to 1.4). Especially global gross capital flows and capital flows in industrial countries follow a similar path, therefore, industrial countries are the driving force of global gross capital flows. World capital inflows grew steadily since the beginning of the 2000s until the global financial crisis in 2007. Capital inflows to Sub-Saharan Africa caught up after 2006, when the oil price hit about US$65 per barrel-which may have constituted a breakeven point for oil projects in the region. FDI (mainly in crude oil projects) has become the main source of capital inflows to the region rather than the PI and OI of the 2000s: the average share of FDI inflows in total inflows grew from 24 percent in the 1990s to 75 percent in the 2000s. In terms of stocks, half of the inward stock of FDI in Sub-Saharan Africa is in South Africa and Nigeria, and the top 10 destinations for FDI stocks account for almost 80 percent of the total stock. Nigeria is a natural resource abundant (oil-rich) country, and South Africa is an emerging market economy that is relatively deeper and more diversified compared with the economies of other Sub-Saharan African countries. Domestic financial markets are mostly underdeveloped in Sub-Saharan Africa. Although gross capital inflows in the world started to pick up between 2002 and 2003, gross inflows for Sub-Saharan Africa did not increase until 2006, when oil prices increased. Oil prices exceeded US$60 per barrel in 2006; hence, many oil-related projects became more profitable in Sub-Saharan Africa and a large amount of FDI started to flow into the region.
Natural resources are an integral part of the economy in Sub-Saharan Africa. Consequently, foreign investments in resource-based activities are the main source of FDI inflows to most of the Sub-Saharan African countries. For instance, according to South African Reserve Bank (2018), the mining sector in South Africa is the region's largest recipient of FDI, which accounted for 20 percent of total FDI in the region in 2016. This amount is comparable to FDI inflows to the manufacturing sector. Almost half the value of those announced FDI greenfield projects is allocated to natural resource-based industries (UNCTAD, 2018). By contrast, in Nigeria, the share of inward FDI stocks in extractive industries (oil and gas) was about 41 percent, and that of manufacturing was 27 percent in 2012 (Doguwa et al. 2014). More than half the value of announced FDI greenfield projects was invested in natural resource-based industries in 2012 (UNCTAD, 2018).
Rising inflows of foreign financing may create opportunities for growth and product diversification as well as enable countries to share risks internationally. However, if capital flows are not properly managed, they may entail risks. The growth benefits of capital flows will outweigh the risks in countries that surpass thresholds in financial and institutional development (Kose, Prasad, and Taylor 2011). Total factor productivity growth will be enhanced in countries with a greater share of FDI and equity inflows over time (Kose, Prasad, and Terrones 2009;Popov 2011). It has been argued that, for instance, capital flows may propel economic growth and development through various channels: (a) greater access to foreign capital may lift credit constraints and enable firms to undertake more productive and riskier investments (Acemoglu and Zilibotti 1997); (b) higher FDI inflows may facilitate the diffusion of technology and managerial practices as well as create incentives to raise the demand for skilled labor (Grossman and Helpman 1991;Haskel, Pereira, and Slaughter 2007); (c) greater international financial integration may raise the depth and scope of domestic financial markets by improving efficiency and enhancing access to financial services (Chinn andIto 2006, 2008;Calderón and Kubota 2009); and (d) the free flow of foreign capital may have a discipline effect on macroeconomic policy-although the effect appears to be more robust for monetary rather than fiscal policy (Tytell and Wei 2005;Kose et al. 2009).
It has also been argued that the inherent volatility of (certain) foreign capital flows may bring instability and uncertainty. Business cycles might become amplified, relative prices might be distorted, and crises might happen more frequently. All these effects could have a negative impact on long-run income levels. Rising international financial integration appears to increase the frequency and severity of currency and banking crises (Kaminsky and Reinhart 1999). Furthermore, the procyclicality of capital inflows has a perverse effect on macroeconomic stability. Consumption and government expenditure tend to grow excessively during periods of capital flow bonanza, and they tend to adjust drastically when foreign capital stops flowing into the domestic economy. The lack of access to global capital markets during bad times may restrict the ability of policy makers to conduct countercyclical fiscal policies (Kaminsky, Reinhart, and Vegh 2005;Calderón and Schmidt Hebbel 2008;Reinhart and Reinhart 2009).
The 2007-08 global financial crisis brought to a halt the protracted rise in international financial integration. The crisis changed the direction and composition of capital in the world. For example, global capital flows retrenched dramatically, from 20.7 percent of GDP in 2007 to 2.78 percent of GDP in 2009. However, the retrenchment was smaller for Sub-Saharan African countries, from 7.5 percent of GDP in 2007 to 5.5 percent of GDP in 2008. The transmission of the global crisis to Sub-Saharan Africa took place through the trade channel, as exports-and more generally trade-collapsed for countries in the region while for commodity exporting nations, the collapse came along with the plunge in international commodity prices. The financial channel did not fully work through most Sub-Saharan African countries-as most domestic financial systems were underdeveloped and did not intermediate a significant proportion of the foreign flows into these countries. Figure 1.1 shows that the retrenchment of global gross inflows was attributed to the plunge in gross OI inflows, while there was a sharp decline in OI and PI across non-Sub-Saharan African developing countries in Figure 1.2. In 2008, there was a small decline in gross PI in Sub-Saharan Africa, because global stock and bond issuance markets not only were shut down for the region, but also these markets were not as deep and liquid. In the aftermath of the global financial crisis, however, there was substitution of gross PI inflows in detriment of gross OI inflows in the region.
The regional average recovery of capital inflows was faster than the global average thanks to the recovery in oil prices, which faced a drastic drop, from US$160 per barrel in June 2008 to US$50 per barrel in January 2009 and increased afterward. The recovery of the temporary (but large) drop in oil prices was attributed to the adverse demand shock being transitory. Then the post-crisis recovery of oil prices may have boosted capital flows into Sub-Saharan Africa. However, global capital inflows were struggling to recover to their pre-crisis averages. In the period that preceded the global financial crisis (the Great Moderation), looser monetary and financial conditions were transmitted across the border through rising banking sector capital flows. The increased leverage of global banks played a key role in the crisis transmission (Cetorelli and Goldberg 2011; Acharya and Schnabl 2010; Kalemli-Ozcan, Papaioannou, and Perri 2013). During this period, the external position of industrial economies was "long equity, short debt," while that of emerging and developing economies was "short equity, long debt" (Lane and Milesi-Ferretti 2007).
The 2007-08 global financial crisis also led to a change in the drivers of global liquidity: syndicated loans plummeted while (sovereign and corporate) bonds were on the rise. The sharp retrenchment of global capital flows was followed by a swift recovery and a change in the composition of capital flows across countries worldwide (Milesi-Ferretti and Tille 2011;Shin 2014;Lane and Milesi-Ferretti 2017). A recent wave of global liquidity has taken place during the post-global financial crisis period; however, this has been characterized by global investors purchasing emerging market bonds. These investors were searching for yields in emerging market debt securities, which led to many international bond (and to a lesser extent equity) issuances at the sovereign and corporate levels (Shin 2014). Compared with Sub-Saharan Africa, Figure 1.1 shows the dramatic decline in gross inflows across the world: they dropped from 18.8 percent of GDP in 2006-07 to 3.5 percent of GDP in 2008-09. This decline was driven by the collapse of cross-border banking flows: gross OI inflows plunged from 7.8 percent of GDP in 2006-07 to -2.1 percent in 2008-09. The other types of gross inflows, FDI and PI, also declined but at a slower pace. Figure 3.1 presents gross inflows by type for Sub-Saharan Africa compared with the rest of the world for selected subperiods from 2000 to 2017. For instance, all types of gross inflows declined sharply among industrial countries during the global financial crisis-especially the collapse of gross OI inflows relative to the pre-crisis period. Gross OI inflows decreased from an average of 5.4 percent of GDP in the pre-crisis period to -4 percent of GDP in the crisis period. Gross inflows, on average, recovered in the post-crisis period (2010-17)-up to 6.4 percent of GDP from 2.4 percent in the crisis period. Therefore, this was characterized by the recovery of gross OI inflows, which was mainly driven by healthier balance sheets and increased cross-border activity in U.S. financial and nonfinancial institutions.
In the case of Sub-Saharan Africa, there was no decline in gross inflows across the region during the global financial crisis. Gross inflows increased from 3.8 percent of GDP in 2000-07 to 6 percent in the crisis period-and the increase was driven by gross OI inflows. Figure 3.2 confirms that gross OI inflows improved across resource-rich African countries: from -2.45 percent of GDP in the pre-crisis period to 2.02 percent in the crisis period. On the other hand, PI in the region decreased by a small portion: from 0.88 percent of GDP in the pre-crisis period to 0.38 percent in the crisis period, as shown in Figure 3.2, because the crisis was transmitted through the financial markets, which are mostly smaller in Sub-Saharan Africa. In the post-crisis period, gross inflows to the region continued to increase (to 7.3 percent of GDP in 2010-17) (Figure 3.1). Growing gross inflows in the aftermath of the global financial crisis were characterized by an increase in gross PI inflows (specifically driven by international bond issuances) and, to a lesser extent, higher gross FDI inflows.
The European sovereign debt crisis hit the Sub-Saharan African economies deeper than the global financial crisis-as captured by the decline in gross OI inflows, that is, international loans. During the European debt crisis, gross capital inflows to the region declined by 4.6 percent of GDP (from 10.12 percent of GDP in 2011 to 5.5 percent in 2013) (Figure 1.2). The decline was larger than the one experienced during the global financial crisis, which was about 2.0 percent (from 7.5 percent of GDP in 2007 to 5.5 percent in 2008) (Figure 1.2). Along with the European debt crisis, the average annual international price of oil went below US$80 per barrel in 2012, from US$110 per barrel in 2011. Consequently, the reduction in international oil prices had an impact on oil projects-especially projects with a breakeven point price below US$80 to US$100 per barrel (for instance, some oil fields in Angola and Nigeria).
The plunge in the international price of oil in 2014 was more persistent in nature than that in 2008-09. It was also driven by supply factors, such as an expansion of the oil supply from non-OPEC countries, technological innovations in the U.S. shale oil supply, and regional conflicts (in the Middle East and the República Bolivariana de Venezuela). These factors had an adverse impact on Sub-Saharan African countries-especially the oil exporting countries in the region.
As international oil prices hit a trough of US$30 per barrel in January 2016, oil became less attractive as an asset, and global investors shifted their demand to other assets (U.S. Treasury bills and stocks, among others), thus raising the returns of those assets. The lower oil prices also made it more difficult for commodity exporting countries (especially oil exporting countries) to borrow, as their capacity to repay deteriorated (due to lower fiscal revenues and lower economic activity). As a result, sovereign bond issuances decreased in Sub-Saharan Africa, as the prospects of oil operations were not favorable and external borrowing rates increased.
The retrenchment of flows into the region from traditional financing partners precipitated the need for other funding options, particularly for infrastructure financing, as bilateral loans and grants from European countries and the United States declined. Sub-Saharan Africa's frontier economies had measured success in tapping global capital markets-especially international bond markets-during the post-global financial crisis period. Since then, several low-income countries in the region-especially lower-middle-income countries-have been issuing eurobonds at an accelerating pace. For instance, there was a rapid rise in sovereign bond issuance between 2013 and 2015, when more countries in Sub-Saharan Africa had access to international capital markets. Sovereign debt issuance in the region increased from an average of US$6 billion during 2013-15 to US$8.2 billion since 2017 (World Bank 2018a). By 2018, 16 countries had issued bonds, several of them on a regular basis, with issuances of considerable size. Conditions for international bond issuances have been favorable, with high and steady demand from investors.
The shifting structure of global capital flows (and the corresponding changes in the composition of the flows into Sub-Saharan African countries) may be associated with changes in the relative importance of global vis-à-vis domestic factors driving capital inflows. For example, it has been argued that the new structure (and resulting volatility) of capital inflows to developing countries (including Sub-Saharan Africa) during the post-global financial crisis period may have increased their sensitivity (or vulnerability) to global (push) factors (Avdjiev et al. 2017). The empirical literature has established that global (push) and domestic (pull) factors are important drivers of capital flows-see, for instance, Calvo, Leiderman, and Reinhart (1993); Fernandez-Arias and Montiel (1996);and Chuhan, Claessens, and Mamingi (1998).

Estimation Technique and Data
To estimate the determinants of gross capital inflows, we use an instrumental variable method for panel data which poses two main challenges. The presence of unobserved period-and country-specific effects is our first challenge. Therefore, we include country and time effects in the regression. The second challenge is that capital flows are likely to be jointly endogenous with shocks to pull factors in domestic markets, therefore, we need to control for the biases due to simultaneous or reverse causality in the regression. Consequently, we control for the endogeneity of domestic growth with instrumental variables such as the commodity terms of trade and lagged economic growth. Our baseline regression equation of capital flows presents the following specification:

Ω µ
where the dependent variable Ω is the ratio of capital flows to GDP. The dependent variable is proxied by the ratio of gross capital inflows to GDP as well as that of FDI, portfolio investments or other investments to GDP for country i in period t. Furthermore, µ is a country effect and is a time effect. The matrix contains information on our pull and/or push factors while is its coefficient vector. Finally, captures the residuals.
The database for the empirical analysis comprises annual information on gross capital inflows for 45 Sub-Saharan African countries from 1980 to 2017. It gathers information for total gross inflows as well as its components, such as foreign direct investment, portfolio investment, and other investment from the International Monetary Fund's (IMF's) Balance of Payments Statistics BPM 6.0. Other foreign financing flows, such as foreign aid and remittance inflows, were collected from the World Bank's World Development Indicators (WDI). The GDP level and growth data were gathered from the WDI. The set of pull factors considered in this paper also includes the Consumer Price Index (CPI) inflation (computed as log differences in the CPI) from WDI, the general government primary balance a percentage of GDP from the IMF's World Economic Outlook, the exchange rate regime based on the Fine classification of exchange rate regimes developed by Reinhart, and Rogoff (2004) and updated by Ilzetzki, Reinhart and Rogoff (2017), and trade openness as the ratio of exports and imports to GDP from the WDI, and the index of financial openness from Chinn-Ito (2006, 2008. Other important pull factors are the quality of institutions proxied by the following ICRG components: investment profile (which accounts for contract viability, expropriation, and profits repatriation), socio-economic conditions (capturing forces at work in society that could constrain government action or fuel social dissatisfaction), government stability (which reflects the government's ability to carry out its declared policies), rule of law (which captures the strength and impartiality of the legal system, and the popular observance of the law), bureaucratic quality (reflecting the strength and expertise of the bureaucracy to govern without drastic changes in policy or interruption in government services), and corruption. Higher values of all these ICRG components imply higher quality of institutions. Push factors are foreign growth as the trade-weighted GDP growth of main trading partners, the VIX index measures volatility computed using S&P 500 index options, and US policy uncertainty is captured by the baseline overall index computed by Baker, Bloom and Davis (2015). Other external factors are commodity prices such as the international price of oil, the price index of minerals and metals, the price of agricultural commodities, and an index of commodity terms of trade which are gathered from the World Bank's Commodity Outlook.

IV Estimation
This section analyzes the empirical results from the instrumental variable method. The dependent variable is gross capital inflows as a ratio of GDP. The different types of capital flows are also included as alternative dependent variables such as gross FDI inflows, gross PI inflows, and gross OI inflows. The set of determinants chosen follows recent empirical literature-for example, Forbes and Warnock (2012), Calderón and Kubota (2019), and Ghosh et al. (2014). Pull factors are domestic factors that attract foreign capital flows, such as domestic economic growth, the level of development (as measured by the GDP per capita), consumer price index inflation, primary balance, exchange rate flexibility, quality of institutions (as proxied by ICRG indicators such as investment profile, government stability, socioeconomic conditions, corruption, bureaucratic quality, among others), trade openness and financial openness. The push or external factors considered in this analysis are the US stock market volatility index (VIX), economic growth of main trading partners, US policy uncertainty, and commodity terms of trade, as well as the international price of oil and the international price index for minerals and metals. The regression analysis compares the behavior of pull and push factors across different time periods : 1980-2017, 1980-99, and 2000-17. This implicitly tests whether financial globalization plays a role in driving changes in the sensitivity of capital inflows to pull and push factors. We run those regressions of the different groups such as all countries, advanced countries, non-SSA countries, Sub-Saharan countries, and natural resource abundant countries. We control the potential endogeneity of domestic GDP growth by using the lagged values of the commodity terms of trade and the domestic GDP growth as instruments.
Tables 1 to 10 analyze drivers of gross capital inflows using linear regression techniques while Tables 11 to 14 investigate non-linearity aspects of the relationship between capital inflows and their domestic and external drivers. We account for the likely endogeneity of GDP growth in the regression analysis reported in Tables 1 through 10 by instrumenting this variable with lagged values of economic growth and commodity terms of trade. Note that the first five tables (1-5) present the regression estimates of the drivers of gross inflows (including their components such as FDI, PI and OI inflows) across different samples (the full sample of countries, industrial countries, developing countries excluding Sub-Saharan Africa, Sub-Saharan Africa and natural resource abundant countries, respectively) for the period 1980-2017. The next five tables (6-10) report the estimates for different sample periods (1980-99 vs. 2000-17) across different samples of countries. Finally, Tables 11 to 14 uncover likely non-linearities between gross inflows and their drivers by estimating quantile regressions for the overall gross inflows as well as their different types; namely, FDI, PI and OI inflows.
The main findings of this regression analysis can be summarized as follows: the behavior of capital flows and their drivers in Sub-Saharan African are similar to those of natural resource abundant countries. There are few determinants that significantly attract gross capital inflows -notably, the quality of institutions (as proxied by the investment profile) and US policy uncertainty. Commodity terms of trade are not able to predict gross inflows. This might be attributed to the fact that this index conflates commodities such as oil price and minerals and metals that exhibit different cycles. However, the commodity terms of trade index is still a good instrumental variable as it captures well the correlation between the explanatory variables being instrumented (e.g. domestic GDP growth) and the dependent variable (gross capital inflows). Finally, for all samples of countries, both domestic and external factors play a role in driving capital flows although for Sub-Saharan Africa, domestic (pull) factors appear to play a stronger role than external (push) factors in attracting these flows. Table 1 shows the baseline regression results of total gross capital inflows, FDI, portfolio investments and other investments for all countries during the period 1980-2007. Overall, domestic factors play a greater (and more significant) role in the explanatory power in attracting gross capital flows than external factors although both factors are important. Domestic economic growth is instrumented with lagged values of economic growth and commodity terms of trade. The lagged values of the other domestic factors are included directly in the regression equation to ameliorate problems of reverse causality.

Baseline regression
Investment profile (a proxy of the quality of institutions) and financial openness have a robust and positive impact on all the different types of gross inflows. For example, a one-point increase in investment profile and financial openness leads to an increase in total gross inflows of 0.0173 points and 0.022 points respectively. Domestic economic growth has a positive and significant influence on total gross inflows, FDI and PI inflows while it has a positive but non-significant relationship with gross OI inflows. An illustration of the economic interpretation of our findings, for instance, shows that if economic growth increases by one point in the full sample period, total inflows increase by 0.00988 point, FDI inflows increase by 0.00539 and portfolio investments inflows increase by 0.00398. Trade openness and all types of flows (total inflows, FDI, PI, and OI) are negatively associated but their impact is not statistically significant. A higher rate of CPI inflation induces more total gross inflows, FDI and PI inflows.
Foreign growth has a positive and significant impact on total gross inflows and other investment inflows while US economic policy uncertainty has a negative and significant relationship with total gross inflows and gross FDI inflows. This implies that greater policy uncertainty in advanced economies may reduce the amount of gross flows into the domestic economy, including fewer volatile investments (say, FDI). Commodity terms of trade show a positive and insignificant impact on FDI inflows but has a negative significant on other investment inflows. On the other hand, prices of mineral and metals have a positive and significant impact on FDI and portfolio investments inflows while the impact of oil prices on total gross inflows and other investments inflows is negative and significant. Therefore, commodity terms of trade may not be able to capture the entire narrative of the commodity price effects on capital flows. This might be attributed to the fact that the different cycles of oil prices and prices of minerals and metals have different impact on gross inflows (as well as their different types). However, commodity of terms of trade is a good instrumental variable to observe the true correlation between explanatory variables (e.g. domestic economic growth) and dependent variable (gross capital inflows).

Baseline regression by country sub-samples
Tables 2 to 5 display the regression estimates across different groups such as industrial countries, non-SSA developing countries, Sub-Saharan African countries and natural resource abundant countries. When assessing the relationship between gross inflows and their drivers, we find that Sub-Saharan African countries and natural resource abundant countries behave alike (see Table 4 and 5) while the behavior of capital flows among industrial countries and non-SSA developing countries is different.
Industrial countries. Table 2 shows that the level of development (GDP per capita) helps attract gross inflows as well as other components of gross inflows (portfolio inflows and, to a lesser extent, FDI). If GDP per capita increases by one point in industrial countries, total gross capital flows increase by 0.43409 point and FDI inflows increase by 0.132 point. CPI inflation has a positive and significant impact on total gross inflows, PI and OI inflows. A higher rate of inflation among industrial countries may signal an increase in economic activity -as captured by the Phillips curve-thus, helping attract PI. In the case of fiscal policy, an increase in the general government primary balance would lead to higher amounts of gross other investments inflows. Fiscal discipline then helps attract gross OI inflows. Investment profile has a positive and significant impact on total gross inflows, FDI and OI inflows while socioeconomic stability would positively impact on OI inflows significantly. These finding implies improved institutional quality helps pull in gross flows to the domestic economy.
Financial openness can affect positively and significantly total gross inflows, PI and OI inflows; therefore, a greater degree of openness in the capital account would induce more total gross capital inflows, PI and OI inflows. Global market uncertainty (as proxied by the VIX index) has a negative and significant relationship with total gross inflows and OI inflows. One may argue that lower market uncertainty would induce more total and OI inflows. Increasing US policy uncertainty would discourage the entry of total gross inflows and FDI among industrial countries. Commodity prices -as proxied by either the commodity terms of trade or the international prices of specific commodities-have no systematic relationship with total gross flows.
Developing countries. Table 3 presents the regression estimates for the group developing counties excluding Sub-Saharan Africa. Economic growth, GDP per capita and CPI inflation significantly attract total gross inflows and OI inflows. For example, a one-point increase in economic growth and GDP per capita would lead to higher total gross capital inflows by 0.0202 point and 0.0986 point respectively. Financial openness significantly induces a greater amount of total gross inflows and FDI. Investment profile has a positive and significant impact on total gross inflows, FDI and OI inflows while government stability shows a positive and significant impact on PI. Socioeconomic conditions have a positive and significant relationship with total gross inflows and OI inflows. Hence, the quality of institutions plays an important role in attracting foreign investors.
Global market uncertainty shows a positive and significant relationship with total gross inflows and OI inflows while the impact of US policy uncertainty is mixed as there is a positive significant impact on PI and a negative significant impact on total gross inflows and OI inflows. Therefore, larger market volatility in the United States (VIX) may lead to greater cross-border bank lending to developing countries. Lower US policy uncertainty may also lead to greater flows and a change in the composition with greater gross OI inflows in detriment of gross PI inflows. Finally, prices of minerals and metals have a positive and significant relationship with total gross inflows, FDI and OI inflows.
Sub-Saharan Africa. As we argued above, the relationships between gross capital inflows and their drivers across Sub-Saharan African countries (Table 4) behave similarly to that of natural resource abundant countries (Table 5). We find a negative relationship between the general government primary balance and gross FDI inflows. Better institutions (as proxied by investment profile) would attract more FDI and PI inflows for natural resource abundant countries, while better investment profile would bring more FDI for Sub-Saharan African countries. Better government stability and socioeconomic conditions would lead to more FDI inflows for both Sub-Saharan Africa and natural resource abundant countries. Higher foreign economic growth and higher US policy uncertainty would bring more total gross inflows and OI inflows for both Sub-Saharan Africa and natural resource abundant countries.

Baseline regression by sub-periods
Tables 6 to 10 present the regression results for all types of flows (total, FDI, PI, and OI) across all countries and by sub-period (1980-99 and 2000-17). We conduct the regression analysis for the different country samples (industrial, non-SSA developing, and SSA countries) across different time periods (1980-99 and 2000-17) for total gross capital inflows, FDI inflows, portfolio investments inflows and other investments inflows, respectively.
Full sample of countries. According to Table 6, economic growth exerts a positive and significant impact on total gross inflows, FDI and PI inflows in the period 2000-17 rather than the period of 1980-99. On the other hand, GDP per capita exhibits a positive and significant relationship with total gross inflows and PI inflows in both subperiods of 1980-99 and 2000-17. For example, a one-point increase in domestic GDP growth during the period 2000 to 2017 would raise total gross capital inflows by 0.0139. Financial openness has a positive and significant impact on total gross inflows in both periods -and that impact is transmitted through higher gross OI inflows and, to a lesser extent, through larger gross PI inflows. Primary balance has a positive and significant impact on total gross capital inflows, portfolio investments inflows and other investments capital inflows from 2000 to 2017. In a world with greater financial globalization, fiscal discipline -as proxied by a healthier primary balance-helps attract capital inflows, especially non-FDI inflows. Trade openness has a negative and insignificant relationship with all types of gross capital inflows, except for portfolio inflows after 2000. This finding implies that trade openness and gross PI inflows might behave like substitutes after 2000 as financial globalization intensifies. In the case of exchange rate regimes, the nature of their impact on gross inflows changes over time. We find that greater flexibility reduces total, portfolio investment and other investment inflows before 1999 while more flexible exchange rate arrangements attract more other investments inflows after 2000. The only plausible explanation for the change in sign over time can be attributed to the operation of different channels of transmission as financial globalization increases.
Foreign growth has a positive and significant impact on total gross inflows -and, particularly, on gross other investment inflows-after 2000. US policy uncertainty has a positive and significant effect on total and PI inflows before 2000, while stock market uncertainty (as proxied by the VIX index) positively influences FDI inflows before 2000. In the case of commodity prices, we find a positive and significant relationship between oil prices and PI inflows after 2000 as well as oil prices and OI inflows before 2000. The international price index of minerals and metals has a positive and significant impact on FDI inflows after 2000. However, the regression estimates fail to uncover a significant impact of the commodity terms of trade on gross inflows. Therefore, we argue that different cycles of commodity prices could offset each other in the aggregate commodity terms of trade index -as these two different groups of commodities (i.e. oil prices vs. prices of minerals and metals) have different cycles.
Industrial countries. Table 7 estimates the drivers of the different components of gross capital flows into industrial countries by different time periods (1980-99 vs. 2000-17). GDP growth in industrial countries does not play a significant role in pulling pull gross capital inflows; however, higher GDP per capita has a significant influence on total gross inflows as well as its components (FDI, PI and OI inflows) before 2000. Higher CPI inflation is associated to greater total gross inflows and other investments inflows for the periods after 2000. On the role of macroeconomic policy in attracting gross inflows, greater fiscal discipline has a positive effect on total gross inflows, PI and OI inflows in the period 2000-17. The quality of institutions (as measured by investment profile) also helps attract total gross inflows -and, especially, PI inflows-in the period 2000-17. Higher financial openness would attract more total capital inflows, PI and OI inflows after 2000.
Regarding the impact of external factors, greater global financial uncertainty (as captured by the VIX) would reduce total gross flows into industrial countries -and, especially, OI inflows after 2000 and PI inflows before 2000. Greater US economic policy uncertainty would increase total capital flows and PI inflows before 2000. Oil prices have a positive and significant impact on total gross inflows, PI and OI inflows before 2000 and PI after 2000 while prices of mineral and metals attract more total gross inflows, FDI and OI inflows after 2000.
Non-SSA developing countries. Table 8 presents the regression estimates of the different types of capital flows across sub-periods for the sample of non-SSA developing countries. Better economic performance and higher GDP per capita would attract more total gross inflows and OI inflows in the period 2000-17. Greater flexibility in the exchange rate arrangement attracts a lower amount of other investment inflows in the period 1980-99 while greater flexibility in the exchange rate regimes bring more other investments inflows in the period of 2000-17. Financial openness attracts more FDI inflows among industrial countries in both periods. Regarding the external variables, foreign growth has a positive and significant relationship with gross OI in the period 2000-17. Global market uncertainty (measured by the VIX) increases the amount of total gross inflows and OI inflows before 2000 and FDI inflows before 2000. Greater US economic policy uncertainty appears to encourage gross PI inflows in the period 2000-17 and OI inflows during 1980-99. Prices of minerals and metals encourage FDI inflows in the period of 2000-17. We find that the international price of certain commodities may attract FDI.
Sub-Saharan Africa. Table 9 estimates the drivers of different types of gross capital flows into Sub-Saharan Africa by subperiod while Table 10 estimates the drivers of different components of gross inflows for natural resource abundance countries. Both groups behave alike. The coefficient estimates of the drivers of gross capital flows into Sub-Saharan African countries are unfortunately insignificant while a few of these coefficients have a significant effect for natural resource abundant countries. For instance, improved investment profile encourages more PI inflows in the period of 2000-17 while US policy uncertainty has a positive and significant relationship with total gross inflows and OI inflows in the period of 2000-17. A question that emerges when comparing Tables 4 and 9 is the lack of significant coefficients by subperiods for Sub-Saharan Africa whereas several domestic and external actors have a significant effect in the full sample period. This could be due to: (1) the lack of fundamentals or a different set of fundamentals in the case of Sub-Saharan African countries and (2) the subsamples fail to produce a systematic relationship with the distribution of gross capital inflows for Sub-Saharan Africa. Our baseline regressions in Table 9 might not be controlling for the relevant explanatory variables for Sub-Saharan African countries. Therefore, we show the different sets of regressions which include some significance in Sub-Saharan countries. Appendix Table A1 shows alternative specification to the baseline regression for total gross inflows, FDI, PI and OI inflows. The external factors matter in the case of Sub-Saharan Africa. For example, foreign economic growth attracts more gross capital inflows after 2000 and other investments inflows before 2000.

Quantile Regressions
A recent strand of the literature highlights the incidence of extreme movements in capital inflows and the likely nonlinear relationship between pull-push drivers and extremely large waves of (inward and/or outward) capital flows. Initially, capital flow bonanzas were documented in the literature using annual information on net capital inflows (Reinhart and Reinhart 2009;Cardarelli, Elekdag, and Kose 2010). The extreme behavior of capital inflows has implications not only for the variable itself, but also for the shocks associated with these waves of flows-which suggests the existence of nonlinear behavior. Therefore, quantile regressions were conducted to investigate the nonlinear relationship between capital inflows and pull-push drivers.
Tables 11 to 14 report the results of quantile regressions that assess the nonlinear relationship between the different types of capital inflows (i.e. total gross inflows, FDI, PI and OI inflows) and their pull and push factors. Overall, the findings show that domestic economic performance, investment profile, and the international price index of minerals and metals are key drivers of capital inflows, FDI and OI inflows at different deciles of the distribution. On the other hand, the results for PI inflows are almost muted.
Total gross inflows. Table 11 presents the results of the quantile regressions for total gross capital inflows. Higher domestic economic growth helps attract total gross capital inflows from the small to the uppermiddle percentiles of the distribution (up to 80 th ) as shown in Figure 3.3. The quality of institutions, as proxied by the ICRG index of investment profile, also helps attract gross capital inflows up to the uppermiddle percentiles (up to 80 th ) as depicted in Figure 3.4. The international price index of minerals and metals pushes foreign investors to bring more capital inflows, and this typically takes place in countries located in the middle-to-high deciles of the distribution (30 th to 90 th percentiles) as plotted in Figure 3.5. Consequently, prices of minerals and metals play a role in influencing gross flows into the domestic economy.
Gross FDI inflows. Table 12 shows the results of the quantile regressions for FDI inflows. These estimates are qualitatively similar to those of total gross inflows. Higher growth in the domestic economy attracts FDI in all deciles of the distribution but the extreme low and high (10 th and 90 th ). The quality of institutions also plays a crucial role in pulling in foreign direct investment in the middle declines of the distribution (from 30 th to 70 th ) although the impact is not as strong as that of gross inflows. Finally, an increase in the price index of minerals and metals also influences the entry of direct investment into the domestic economy -especially, in countries from the lower to upper middle deciles (from 20 th to 80 th ). Global stock market uncertainty exerts a positive impact on gross FDI inflows from low to upper-middle deciles (that is, from 20 th to 80 th ).
Gross non-FDI inflows. Table 13 presents the results of quantile regressions for gross PI inflows. Most of the coefficient estimates are not statistically significant except for the coefficient estimates of GDP per capita in upper-middle percentiles (specifically, 70 th and 80 th percentiles) and investment profile (70 th percentile). Table 14, on the other hand, reports the coefficient estimates of the quantile regressions for OI inflows. Some of the findings in this table are qualitatively similar to those of total and FDI inflows. For instance, the evolution of economic growth, investment profile and the prices of minerals and metals helps attract gross OI inflows. The impact of economic growth on gross OI inflows is stronger in the low to middle percentiles (20 th to 60 th ) while that of investment profile and the price of minerals and metals is stronger in lower to upper-middle percentiles (30 th to 80 th and 30 th to 90 th , respectively). In addition, CPI inflation pulls more OI from 40 th to 90 th percentiles while the impact is stronger in the lower percentiles for foreign economic growth (20 th to 40 th ) and GDP per capita (30 th to 40 th ).

Conclusions
This paper examines recent trends in Sub-Saharan Africa and estimates the drivers of capital flows into the region. These estimates are compared with those of gross inflows across countries in the world and across sub-samples (industrial countries, non-SSA developing countries and natural resource abundant countries). We show that the post-global financial crisis behavior of capital flows in Sab-Saharan Africa is unique and differs from that of global capital flows. Our empirical evidence supports this evidence and suggests that the behavior of capital flows into Sub-Saharan Africa and natural resource abundant countries is alike. On the other hand, global capital flows, and flows into industrial and non-SSA countries behave differently from those into Sub-Saharan Africa. Our regression analysis reveals that external factors are the main drivers of gross capital inflows into Sub-Saharan Africa, while both domestic and external factors are important for industrial countries and non-SSA countries. In the case of Sub-Saharan Africa, foreign growth, uncertainty in global financial markets and global economic policy help push gross flows into the region. Commodity terms of trade constitutes a good instrumental variable of domestic growth for our empirical analysis. It shows, however, insignificance as an explanatory variable because the differences in the cycles of oil prices and prices of mineral and metals can offset each other in an aggregate index. Although their impact is not as robust as that of the push factors mentioned above, institutions that foster contract viability and investor protection (as proxied by the ICRG indicator of investment profile) help attract foreign investments into the region.
The evolution of global capital flows, as expected, is driven by recent trends of capital flows into industrial countries. The 2008-09 global financial crisis led to a sharp decline in global flows -thus, causing a deeper retrenchment of capital flows among industrial and non-SSA developing countries. In the case of Sub-Saharan Africa, gross flows into the region were hit harder by the 2011-12 euro sovereign debt crisis rather than the 2008-09 global financial crisis.
The recent three large external shocks (2008-09 global financial crisis, 2011-12 European sovereign debt crisis, and the 2014 plunge in oil prices) were transmitted differently across regions of the world. The three external shocks have played a role in changing the composition of capital inflows and shifting the current structure of financial flows into Sub-Saharan Africa toward other foreign financing flows that reflect greater international bond issuances. FDI and foreign aid are the most dominant financial flows into the Africa region. PI 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, PI inflows have experienced an uptick among frontier economies in the region.
The analysis of the determinants of capital flows suggests that in general pull and push factors are the driving forces of gross flows into countries across the world, especially better economic performance, a sound general government primary balance, improved quality of institutions, and greater degree of financial openness. The main findings of this paper suggest that the impact of both pull and push factors on gross inflows across the world has become stronger in the 2000s. Financial openness helps attract gross capital inflows in the 2000s. Trade openness was a complement to gross inflows in 1980-99 and works as a substitute of gross inflows in 2000-17 (especially FDI inflows). Macroeconomic policy can play an important role in attracting capital inflows across the world. For example, fiscal discipline promotes greater other investments inflows and less flexible exchange rate arrangements (more exchange rate stability) foster portfolio investments inflows. Capital flow behavior for Sub-Saharan African countries is different from that of industrial countries due to different economic structures which render different transmission processes.
Plausible policy recommendations arising from the analysis suggest the need to diversify the economic and export structure to mitigate volatility from oil and commodity prices, develop deeper domestic financial markets, and implement policies to promote a productive business environment and create investment opportunities. Our empirical evidence suggests that financial openness would attract all types of capital inflows, therefore, a priority should be to develop the domestic financial markets in Sub-Saharan Africa. Policies that improve the business environment for domestic private sector firms will foster sustained foreign financing in productive activities, because FDI and foreign aid are the main sources of financing in some countries in the region because public sector participation in the economy is currently larger than private sector business activity.       1980-99 2000-17 1980-99 2000-17 1980-99 2000-17 1980-99 2000-17 1980-99 2000-17 1980-99 2000-17 1980-99 2000-17 1980-99 2000-17 VARIABLES 1980VARIABLES -2017VARIABLES 1980VARIABLES -1999VARIABLES 2000VARIABLES -2017VARIABLES 1980VARIABLES -2017VARIABLES 1980VARIABLES -1999VARIABLES 2000VARIABLES -2017VARIABLES 1980VARIABLES -2017VARIABLES 1980VARIABLES -1999VARIABLES 2000VARIABLES -2017VARIABLES 1980VARIABLES -2017VARIABLES 1980VARIABLES -1999VARIABLES 2000VARIABLES -2017VARIABLES 1980VARIABLES -2017VARIABLES 1980VARIABLES -1999VARIABLES 2000VARIABLES -2017 Domestic Factors GDP Growth -0.

. Impact of GDP growth on gross FDI inflows across percentiles
Note: The blue (solid) line represents the coefficient estimates of GDP growth of the quantile regressions reported in Table 11. The red (dotted) lines are the confidence intervals of those regression estimates at the 5 percent level.

. Impact of the price of minerals and metals on gross FDI inflows across percentiles
Note: The blue (solid) line represents the coefficient estimates of GDP growth of the quantile regressions reported in Table 11. The red (dotted) lines are the confidence intervals of those regression estimates at the 5 percent level.