Economic Policy Implications of External Debt and Capital Flight in Sub-Saharan Africa’s Heavily Indebted Poor Countries

Isaac Kwesi Ampah () and Gábor Dávid Kiss
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Isaac Kwesi Ampah: Faculty of Economics and Business Administration, University of Szeged, Szeged, Hungary

Society and Economy, 2019, vol. 41, issue 4, 523-542

Abstract: The paper analyses the impact of the simultaneous occurrence of external debt and capital flight on economic policy effectiveness in Heavily Indebted Poor Countries (HIPCs) in sub-Saharan Africa, employing the Panel-Corrected Standard Error regression model for the period 1990 to 2015. The empirical results reveal that both monetary and fiscal policies in the region had been undermined in achieving their intended purposes because of increasing capital flight and external debt. Also, the concurrent occurrence of capital flight and external debt has been a hindrance to progress on the continent, particularly by undermining domestic investment. These results call for more practical measures in addressing the issues of foreign debt and capital flight, given the critical importance of domestic private investment for both short- and long-run growth.

Keywords: Heavily Indebted Poor Countries (HIPC); external debt; capital flight; Panel-Corrected Standard Error (PCSE); fiscal and monetary policies (search for similar items in EconPapers)
JEL-codes: F32 F34 O22 (search for similar items in EconPapers)
Date: 2019
Note: This research was supported by the project EFOP-3.6.2-16-2017-00007, entitled Aspects on the development of intelligent, sustainable and inclusive society: social, technological, innovation networks in employment and digital economy. The project has been supported by the European Union, co-financed by the European Social Fund and the budget of Hungary.
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