Capital Flight-Growth Nexus In Subsaharan Africa - The Role Of Macroeconomic Uncertainty

The indispensable role of capital towards achieving sustainable growth and development in any economy is indisputable. However, despite the increasing evidence of capital inflow to Sub-Saharan Africa (SSA), the capacity to retain this capital for long run growth appears weak given the high incidence of capital flight from the region. Research methodology and data: Using the updated estimates of capital flight for SSA by Boyce and Ndikumana [BN] (2012), we investigate capital flight-growth nexus and the role of macroeconomic uncertainty in SSA. The data utilized cover 28 members of SSA covering the relevant sub-regions for the period 1986 to 2010 for which adequate data are available. We formulate a dynamic panel data model that accounts for both non-stationarity and heterogeneity effects in the data and consequently, we employ the Mean Group (MG) and Pooled Mean Group (PMG) estimators to analyze the model. Research findings: On average, we find that the adverse effect of capital flight on growth of SSA is incontrovertible and has the tendency of being escalated by macroeconomic uncertainty. In addition, the results suggest that capital flight has more devastating effects on long run growth of the oil-exporting region than their non-oil counterpart when confronted with macroeconomic uncertainty. We also establish that the inflow of foreign direct investment and foreign aid are not adequate to compensate for capital flight from SSA, while domestic investment and human capital, on the other hand, are drivers of growth in SSA. Policy implications. On the basis of our findings, we advise fiscal and monetary authorities to show serious commitments towards addressing the prevalent macroeconomic uncertainty in SSA in order to mitigate its influence on capital flight and growth in the region. Also, policies that promote human capital development and domestic investments in SSA should be pursued.