Capital Flight in Africa: An Analysis of Macroeconomic and Institutional Quality Determinants

Umakrishnan Kollamparambil and Diana Gumbo ()
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Diana Gumbo: University of Witwatersrand

The African Finance Journal, 2018, vol. 20, issue 2, 21-44

Abstract: This study examines the macroeconomic and institutional determinants of capital flight using panel data for 29 Sub-Saharan African Countries from 1996-2010. By using the Arellano–Bover/Blundell– Bond System GMM dynamic estimator, this study effectively addresses both autocorrelation and endogeneity in panel data analysis. The empirical results show hysteresis as a highly significant factor thus reinforcing the notion that capital flight tends to persist over time, secondly; macroeconomic variables like external debt, inflation and economic growth are key determinants of capital flight and; thirdly, institutional quality has a significant non-linear impact on capital flight for developing countries indicating that marginal changes to institutional quality impacts capital flight only in the case of countries with low institutional quality. Lastly, unlike other measures of institutional quality, corruption is not found to be an effective determinant of capital flight. This indicates that the nature rather the level of corruption is more relevant in this regard. Given that past capital flight begets more capital flight, it is important to take care of macroeconomic fundamentals and upgrade institutional quality in order to counter capital flight.

Keywords: Capital flight; External Debt; macroeconomic fundamentals; institutional quality (search for similar items in EconPapers)
JEL-codes: E02 F29 F49 N17 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:afj:journl:v:20:y:2018:i:2:p:21-44

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