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Africa's Exodus: Capital Flight and the Brain Drain as Portfolio Decisions

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  • Paul Collier
  • Anke Hoeffler
  • Catherine Pattillo

Abstract

We build a data set on financial and human capital flight for 48 countries for the period 1970--98 and analyse capital flight as a portfolio choice. Financial capital flight is measured as the stock of capital flight relative to domestically held private net wealth and human capital flight as the proportion of a country's educated population that is living outside the country. Our results suggest that the same economic factors influence human and financial portfolio decisions, namely the relative returns and the relative risks in the competing locations. We focus on the estimated model's implications for Africa, finding that the severe financial capital flight that Africa experienced until the late 1980s has started to be reversed. The factors that have accounted for this repatriation are probably the reduction in the parallel market premium and African indebtedness, the reduction in the incidence of civil war (a phenomenon true only of our sample countries, rather than a general African phenomenon) and the decline in real US interest rates. In contrast, we find that human capital flight is rapidly increasing, as the emigration of the educated is subject to much more powerful momentum effects than financial capital flight. Finally, we find that for both types of capital flight policy changes only affect outcomes with long lags, suggesting that Africa's human capital exodus will be an increasingly important problem. Copyright 2004, Oxford University Press.

Suggested Citation

  • Paul Collier & Anke Hoeffler & Catherine Pattillo, 2004. "Africa's Exodus: Capital Flight and the Brain Drain as Portfolio Decisions," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 13(02), pages 15-54, December.
  • Handle: RePEc:oup:jafrec:v:13:y:2004:i:02:p:ii15-ii54
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    Cited by:

    1. Jomo Kwame Sundaram & Rudiger von Arnim, 2008. "Economic liberalization and constraints to development in sub-Saharan africa," Working Papers 67, United Nations, Department of Economics and Social Affairs.
    2. Chakrabarty Debajyoti & Chanda Areendam & Ghate Chetan, 2006. "Education, Growth, and Redistribution in the Presence of Capital Flight," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-41, November.
    3. Ashok Chakravarti, 2012. "Institutions, Economic Performance and the Visible Hand," Books, Edward Elgar Publishing, number 14751.
    4. Marcelino, Pedro F. & Cerrutti, Marcela S., 2012. "Recent African immigration to South America: The cases of Argentina and Brazil in the regional context," Documentos de Proyectos 3963, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    5. Asongu, Simplice & Amankwah-Amoah, Joseph, 2017. "Mitigating capital flight through military expenditure: insight from 37 African countries," MPRA Paper 82636, University Library of Munich, Germany.
    6. Gimenez-Nadal, J. Ignacio & Molina, José Alberto & Silva Quintero, Edgar, 2016. "How Forced Displacements Caused by a Violent Conflict Affect Wages in Colombia," IZA Discussion Papers 9926, Institute for the Study of Labor (IZA).
    7. Patrick Honohan & Thorsten Beck, 2007. "Making Finance Work for Africa," World Bank Publications, The World Bank, number 6626.
    8. Asongu, Simplice & Amankwah-Amoah, Joseph, 2016. "Military expenditure, terrorism and capital flight: Insights from Africa," MPRA Paper 74230, University Library of Munich, Germany.
    9. Simplice A. Asongu, 2014. "Fighting African Capital Flight: Empirics on Benchmarking Policy Harmonization," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 11(1), pages 93-122, June.
    10. Oucho, John O., 2012. "International migration: Trends and institutional frameworks from the African perspective," Documentos de Proyectos 3964, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Efobi, Uchenna & Asongu, Simplice, 2015. "How Terrorism Explains Capital Flight from Africa," MPRA Paper 68662, University Library of Munich, Germany.
    12. Simplice A. Asongu & Jacinta C. Nwachukwu, 2017. "Fighting Capital Flight in Africa: Evidence from Bundling and Unbundling Governance," Journal of Industry, Competition and Trade, Springer, vol. 17(3), pages 305-323, September.
    13. Efobi, Uchenna & Asongu, Simplice, 2016. "Terrorism and capital flight from Africa," International Economics, Elsevier, vol. 148(C), pages 81-94.
    14. Christopher Blattman & Edward Miguel, 2010. "Civil War," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 3-57, March.
    15. Davies, Victor A. B., 2007. "Capital flight and war," Policy Research Working Paper Series 4210, The World Bank.
    16. -, 2012. "Development, institutional and policy aspects of international migration between Africa, Europe and Latin America and the Caribbean," Documentos de Proyectos 461, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    17. Marion Mercier & Rama Lionel Ngenzebuke & Philip Verwimp, 2016. "Violence exposure and welfare over time: Evidence from the Burundi civil war," HiCN Working Papers 198 updated, Households in Conflict Network.
    18. Ratha, Dilip & Mohapatra, Sanket & Plaza, Sonia, 2008. "Beyond aid : new sources and innovative mechanisms for financing development in Sub-Saharan Africa," Policy Research Working Paper Series 4609, The World Bank.
    19. repec:dgr:rugsom:14031-eef is not listed on IDEAS
    20. Marion Mercier & Rama Lionel Ngenzebuke & Hugues Philip Verwimp, 2017. "Violence exposure and deprivation: Evidence from the Burundi civil war," Working Papers DT/2017/14, DIAL (Développement, Institutions et Mondialisation).
    21. Valls, Andreu Domingo I. & Vono de Vilhena, Daniela, 2012. "Africans in the Southern European countries: Italy, Spain and Portugal," Documentos de Proyectos 3961, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    22. Hermes, Niels & Lensink, Robert, 2014. "Financial liberalization and capital flight," Research Report 14031-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    23. Valk, Helga A. G. de & Huisman, Corina & Noam, Kris R., 2012. "Migration patterns and immigrants characteristics in North-Western Europe," Documentos de Proyectos 3962, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

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