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

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Léonce Ndikumana

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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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Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp32.

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Date of creation: 2002
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Handle: RePEc:uma:periwp:wp32

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Keywords: capital flight debt sub-Saharan Africa debt relief capital control

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  6. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Meenakshi Rishi & Valerie Cerra & Sweta Chaman Saxena, 2005. "Robbing the Riches: Capital Flight, Institutions, and Instability," IMF Working Papers 05/199, International Monetary Fund. [Downloadable!]
  2. Léonce Ndikumana, 2006. "Corruption and Pro-Poor Growth Outcomes: Evidence and Lessons for African Countries," Working Papers wp120, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  3. Davies, Victor A. B., 2007. "Capital flight and war," Policy Research Working Paper Series 4210, The World Bank. [Downloadable!]
  4. Christer Ljungwall & Steven Wang, 2004. "Why is capital flowing out of China?," Trade Working Papers 606, East Asian Bureau of Economic Research. [Downloadable!]
  5. Kisangani Emizet & Léonce Ndikumana, 2003. "The Economics of Civil War: The Case of the Democratic Republic of Congo," Working Papers wp63, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  6. James Boyce & Léonce Ndikumana, 2008. "New Estimates of Capital Flight from Sub-Saharan African Countries: Linkages with External Borrowing and Policy Options," Working Papers wp166, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
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