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Public Debts and Private Assets: Explaining Capital Flight from Sub-Saharan African Countries

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  • Ndikumana, Leonce
  • Boyce, James K.

Abstract

We investigate the determinants of capital flight from 30 sub-Saharan African countries, including 24 countries classified as severely indebted low-income countries, for the period 1970-1996. The econometric analysis reveals that external borrowing is positively and significantly related to capital flight, suggesting that to a large extent capital flight is debt-fueled. We estimate that for every dollar of external borrowing in the region, roughly 80 cents flowed back as capital flight in the same year. Capital flight also exhibits a high degree of persistence in the sense that past capital flight is correlated with current and future capital flight. The growth rate differential between the African country and its OECD trading partners is negatively related to capital flight. We also explore the effects of several other factors - inflation, fiscal policy indicators, the interest rate differential, exchange rate appreciation, financial development, and indicators of the political environment and governance. We discuss the implications of the results for debt relief and for policies aimed at preventing capital flight and attracting private capital held abroad.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 31 (2003)
Issue (Month): 1 (January)
Pages: 107-130

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Handle: RePEc:eee:wdevel:v:31:y:2003:i:1:p:107-130

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Web page: http://www.elsevier.com/locate/worlddev

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  1. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," NBER Working Papers 2610, National Bureau of Economic Research, Inc.
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  15. Boyce, James K., 1992. "The revolving door? External debt and capital flight: A Philippine case study," World Development, Elsevier, vol. 20(3), pages 335-349, March.
  16. Lensink, Robert & Hermes, Niels & Murinde, Victor, 1998. "The Effect of Financial Liberalization on Capital Flight in African Economies," World Development, Elsevier, vol. 26(7), pages 1349-1368, July.
  17. Michael P. Dooley, 1988. "Capital Flight: A Response to Differences in Financial Risks," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 422-436, September.
  18. Lensink, Robert & Hermes, Niels & Murinde, Victor, 1998. "Capital flight and political risk," Research Report 98C34, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  19. Mohsin S. Khan & Nadeem Ul Haque, 1985. "Foreign Borrowing and Capital Flight: A Formal Analysis (Emprunt extérieur et évasion de capitaux: analyse mathématique) (Endeudamiento externo y fuga de capitales: Un análisis formal)," IMF Staff Papers, Palgrave Macmillan, vol. 32(4), pages 606-628, December.
  20. J. K. Boyce & L. Ndikumana, 2001. "Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-96," Journal of Development Studies, Taylor & Francis Journals, vol. 38(2), pages 27-56.
  21. Pastor, Manuel Jr., 1990. "Capital flight from Latin America," World Development, Elsevier, vol. 18(1), pages 1-18, January.
  22. Richard N. Cooper, 1999. "Should Capital Controls be Banished?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 89-142.
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