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Capital flight from sub-Saharan Africa: linkages with external borrowing and policy options

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  • Leonce Ndikumana
  • James Boyce

Abstract

Even as African countries became increasingly indebted, they experienced large-scale capital flight. Some of this was legitimately acquired capital fleeing economic and political uncertainties; some was illegitimately acquired wealth spirited to safer havens abroad. This paper presents new estimates of the magnitude and timing of capital flight from 33 sub-Saharan African countries from 1970 to 2004. We then analyze its determinants, including linkages to external borrowing. Our results confirm that sub-Saharan Africa is a net creditor to the rest of the world, in that the subcontinent's private external assets exceed its public external liabilities: total capital flight amounted to $443 billion (in 2004 dollars), compared to the external debt of $195 billion. Econometric analysis indicates that for every dollar in external loans to Africa in this period, roughly 60 cents flowed back out as capital flight in the same year, a finding that suggests the existence of widespread debt-fueled capital flight. The results also show a debt-overhang effect, as increases in the debt stock spur additional capital flight in later years. In addition to policies for recovery of looted wealth and repatriation of externally held assets, we discuss the need for policies to differentiate between legitimate and odious debts, both to ease current burdens on African countries and to improve international financial governance in the future.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/02692171.2010.483468
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 25 (2011)
Issue (Month): 2 ()
Pages: 149-170

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Handle: RePEc:taf:irapec:v:25:y:2011:i:2:p:149-170

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Related research

Keywords: capital flight; external debt; stolen assets; odious debt;

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Cited by:
  1. Zuzana Brixiová & Léonce Ndikumana, 2011. "Supporting Africa’s Post-Crisis Growth: The Role of Macroeconomic Policies," Working Papers wp254, Political Economy Research Institute, University of Massachusetts at Amherst.
  2. Demachi, Kazue, 2013. "Capital Flight and Transfer from Resource-Rich Developing Countries," MPRA Paper 50273, University Library of Munich, Germany.
  3. Asongu Simplice, 2013. "Fighting African Capital Flight: Empirics on Benchmarking Policy Harmonization," Working Papers 13/006, African Governance and Development Institute..
  4. Kazue Demachi, 2014. "Capital flight from resource rich developing countries," Economics Bulletin, AccessEcon, vol. 34(2), pages 734-744.

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