Fighting Capital Flight in Africa: Evidence from Bundling and Unbundling Governance

Asongu, Simplice and Nwachukwu, Jacinta (2016): Fighting Capital Flight in Africa: Evidence from Bundling and Unbundling Governance. Forthcoming in: Forthcoming in Journal of Industry, Competition and Trade

Abstract

This study investigates the effect of governance on capital flight by bundling and unbundling governance. The empirical evidence is based on 37 African countries for the period 1996-2010 and the Generalised Method of Moments. Governance is bundled by principal component analysis, namely: (i) political governance from political stability and ‘voice and accountability’; (ii) economic governance from government effectiveness and regulation quality and (iii) institutional governance from corruption-control and the rule of law. The following findings are established. (i) Political stability and ‘voice and accountability’ reduce capital flight while the collective effect of political governance is not significant. (ii) Economic governance increases capital flight whereas the individual effects of regulation quality and government effectiveness are not significant. (iii) Corruption-control and institutional governance negatively affect capital flight whereas the impact of the rule of law is not significant. (iv) Taken together, Corruption-control is the most effective governance weapon in the fight against capital flight. (v) Priority in the Washington Consensus is more effective at fighting capital flight compared to the Beijing Model. Policy implications are discussed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Econometric modelling; Capital flight; Governance; Africa
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; P - Economic Systems > P1 - Capitalist Systems > P17 - Performance and Prospects

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