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New Estimates of Capital Flight from Sub-Saharan African Countries: Linkages with External Borrowing and Policy Options

  • James Boyce
  • Léonce Ndikumana

Even 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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Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp166.

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Date of creation: 2008
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Handle: RePEc:uma:periwp:wp166
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  1. Morisset, Jacques, 2000. "Foreign direct investment in Africa : policies also matter," Policy Research Working Paper Series 2481, The World Bank.
  2. Michael Kremer & Seema Jayachandran, 2002. "Odious Debt," NBER Working Papers 8953, National Bureau of Economic Research, Inc.
  3. Ndikumana, Leonce & Boyce, James K., 2003. "Public Debts and Private Assets: Explaining Capital Flight from Sub-Saharan African Countries," World Development, Elsevier, vol. 31(1), pages 107-130, January.
  4. Boyce, James K., 1992. "The revolving door? External debt and capital flight: A Philippine case study," World Development, Elsevier, vol. 20(3), pages 335-349, March.
  5. Matthew Higgins & Alketa Hysenbegasi & Susan Pozo, 2004. "Exchange-rate uncertainty and workers' remittances," Applied Financial Economics, Taylor & Francis Journals, vol. 14(6), pages 403-411.
  6. Simeon Inidayo Ajayi, 1997. "An Analysis of External Debt and Capital Flight in the Severely Indebted Low Income Countries in Sub-Saharan Africa," IMF Working Papers 97/68, International Monetary Fund.
  7. J. K. Boyce & L. Ndikumana, 2001. "Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-96," Journal of Development Studies, Taylor & Francis Journals, vol. 38(2), pages 27-56.
  8. Elizabeth Asiedu, 2004. "The Determinants of Employment of Affiliates of US Multinational Enterprises in Africa," Development Policy Review, Overseas Development Institute, vol. 22, pages 371-379, 07.
  9. Ndikumana, Leonce, 2000. "Financial Determinants of Domestic Investment in Sub-Saharan Africa: Evidence from Panel Data," World Development, Elsevier, vol. 28(2), pages 381-400, February.
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