Determinants of capital flight: new panel evidence from Sub-Saharan Africa (SSA)

This paper examines the determinants of capital flight in sub Saharan African countries (SSA) by introducing corruption as a focus variable in the model. The econometric analysis is based on data from 25 SSA countries over the period 1986–2010 using dynamic panel data estimation methods: Corruption, our focus variable retains its expected positive sign and is statistically significant across all the estimations. The relationship remains very strong even when other standard control variables are taken into account. These results confirm our hypothesis that the nature of corruption in SSA is such that it encourages and promotes capital flight. The empirical findings also indicate that the capital flight in SSA countries is driven mainly by corruption, lag capital flight, external debt, foreign direct investment, and macroeconomic uncertainty. Based on these results, the paper recommends that governments in the region should manage their external debt efficiently, and stabilize their monetary and macroeconomic policies in order to curtail capital flight. Finally, our results are also robust to different specifications, measures of corruption, and econometrics estimation techniques.