New Estimates of Capital Flight from Sub-Saharan African Countries: Linkages with External Borrowing and Policy Options
AbstractEven as African countries became increasingly indebted from 1970 to 2004, 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 40 sub-Saharan African countries and analyzes 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 $420 billion (in 2004 dollars), compared to the external debt of $227 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 and to improve international financial governance in the future.
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Bibliographic InfoPaper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp166.
Date of creation: 2008
Date of revision:
capital flight; external indebtedness; stolen assets; odious debt;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
This paper has been announced in the following NEP Reports:
- NEP-AFR-2008-05-10 (Africa)
- NEP-ALL-2008-05-10 (All new papers)
- NEP-DEV-2008-05-10 (Development)
- NEP-OPM-2008-05-10 (Open Economy Macroeconomic)
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