Measuring Capital Flight in West African Economic and Monetary Union Countries: The Role of Governance

International Journal of Economics and Management Studies

© 2021 by SSRG - IJEMS Journal

Volume 8 Issue 9

Year of Publication : 2021

Authors : Kuamvi Sodji

10.14445/23939125/IJEMS-V8I9P102

How to Cite?

Kuamvi Sodji, "Measuring Capital Flight in West African Economic and Monetary Union Countries: The Role of Governance," SSRG International Journal of Economics and Management Studies, vol. 8,  no. 9, pp. 7-21, 2021. Crossref, https://doi.org/10.14445/23939125/IJEMS-V8I9P102

Abstract:

This paper presents an updated methodology for estimating capital flight using the residual method in countries of the West African Monetary Union zone. The results indicate that four countries have experienced significant real capital flight over the last four decades (1970-2016), reaching $58655.28 million (Côte d'Ivoire, Niger, Burkina Faso, and Senegal). To this end, given the importance of governance in the zone, the paper extends the debate on its role in capital flight over the period 1996-2016. Governance is clustered by principal components analysis, and the results suggest that political stability, voice, and accountability reduce capital flight while their collective effect through political governance is not significant in the long run. Overall, the fight against trade distortions is very important in WAEMU, and the most effective weapon, in the long run, is the improvement of political governance through the priority of the Washington Consensus.

Keywords:

Capital flight, Governance, Residual method, WAEMU.

References:

[1] S. Ajayi, An analysis of external debt and capital flight in the severely indebted low-income countries in sub-Saharan Africa, IMF, Working Paper (1997), WP/97/68.
[2] U. Akpan, I. Salisu et A. Simplice, Determinants of Foreign Direct Investment in Fast-Growing Economies : A Study of brics and mint, African Governance and Development Institute (2014) pp. Accessed on October 30, 2015.
[3] A. R. Andrés, S. A. Asongu at V. H. Amavilah, The Impact of Formal Institutions on Knowledge Economy, Journal of the Knowledge Economy (2014) accessed January 17, 2014.
[4] K. I. Ampah, D. G. Kiss et B. Koto, Capital flight and external debt in Heavily Indebted Poor Countries in Sub-Saharan Africa : An empirical investigation, Challenges in National and International Economic(2018) 135 – 159..
[5] S. A. Asongu at J. C. Nwachukwu, Drivers of FDI in Fast-Growing Developing Countries : Evidence from Bundling and Unbundling Governance, African Governance and Development Institute(2015) Working Paper No. 15/001.
[6] S. A. Asongu et J. C. Nwachukwu, The Mobile Phone in the Diffusion of Knowledge of Institutional Quality in Sub-Saharan Africa, World Development , 86(October) (2016b) 133-147.
[7] S. A. Asongu et J. C. Nwachukwu, Foreign aid and governance in Africa, International Review of Applied Economics, 30(1) (2016c) 69-88.
[8] J. Ba et S. Ng, Confidence intervals for diffusion index forecasts and inference for factor-augmented regression, Econometrica, 74(4) (2006) 1133-1150.
[9] BCEAO, Stratégie régionale d’inclusion financière dans l’UEMOA, note d’Information N° 2/2017 (2017) Dakar.
[10] V. Cerra, M. Rischi et S. C. Saxena, Robbing the rich: Capital flight, institutions, and debt, Journal of Development Studies, 44(8) (2008) 1190–213.
[11] P. Collier, A. Hoeffler et C. Pattillo, Africa’s exodus: Capital flight and the brain drain as portfolio decisions. Journal of African Economies, 13(suppl_2), ii15 ii54, Africa’s exodus: Capital flight and the brain drain as portfolio decisions. Journal of African Economies, 13(suppl_2), ii15 ii54, 13(1) (2004a) ii15 ii54.
[12] P. Collier, A. Hoeffler et C. Pattillo, Aid and Capital Flight', Oxford University : Centre for the Study of African Economies (2004b).
[13] R. Dornbusch, Dollars, Debts and Deficits, 'dollars, Debts and Deficits,' Cambridge, Mass., MIT Press (1986).
[14] D. Duwendag, Capital Flight From Developing Countries, Development Co-Operation (1989) 3.
[15] S. Gupta, C. Pattillo at S. Wagh, Impact of Remittances on Poverty and Financial Development in Sub-Saharan Africa, International Monetary Fund, p. (2007) Working Paper 07/38.
[16] R. Greenaway-McGrevy, C. Han et D. Sul, Asymptotic distribution of factor augmented estimators for panel regression, Journal of Econometrics, 169 (1) (2012) 48-53.
[17] K. Hadri, Testing for Unit Roots in Heterogeneous Panel Data, Econometrics Journal 3(2000) 148-161.
[18] L. Henry, Capital Flight From Beautiful Places : The Case of Three Caribbean Countries, International Review of Applied Economics, 10(2) (1996) 263-72,.
[19] J. S. Henry, The Price of Offshore Revisited, Appendix 2 Explaining Capital Flight (2012) .
[20] R. Lensink , N. Hermes et V. Murinde, Capital Flight and the Uncertainty of Government Policies, Economics Letters, 71(3) (2001) 377-81.
[21] R. Lensink, N. Hermes et V. Murinde, Lensink, R., N. HermFlight capital and its reversal for development financing, (2002), Discussion Paper No. 2002/99, WIDER, Helsinki.
[22] P. Jadhav et V. Katti, Institutional and Political Determinants of Foreign Direct Investment : Evidence From BRICS Economies, Poverty at Public Policy, 4 (3) (2012) 49-57.
[23] C. Kao, Spurious regression and residual-based tests for cointegration in panel data, Journal of Econometrics (1999) 90 (1999) 1-44.
[24] Kettl, The Transformation of Government, chez Public Administration for the 21st Century Baltimore : Johns Hopkins University Press (2002).
[25] I. Kolstad et A. Wiig, Better the Devil You Know ? Chinese Foreign Direct Investment in Africa, Journal of African Business, 12(2) (2011) 31-50.
[26] D. Lederman, N. V. Loayza et R. R. Soares, Accountability and corruption : Political institutions matter, Economics at Politics, 17 (1) (2005) 1-35,.
[27] S. Le Roux et D. Kelsey, Strategic Ambiguity and Decision-making an Experimental Study, Department of Economics, Oxford Brookes University( 2016).
[28] A. Levin at C. F. Lin, Unit root tests in panel data : Asymptotic and finite sample properties, Discussion Paper 56, Department of Economics, University of California at San Diego (1992).
[29] X. Lin et C. Farrell, The Internationalization Strategies of Chinese State and Private State Enterprises in Africa, Journal of African Business, 14(2) (2013) 85-95.
[30] W. R. Lovan, M. Murray et R. Schaffer, Participatory governance in a changing world, in Participatory Governance : Planning, Conflict Mediation and Public (2004).
[31] A. S. Ndiaye, The Role of Capital Flight in the Fluctuations in Domestic Investment : Evidence from African Countries in the Franc Zone, Centre for Studies of African Economies, pp. Conference on
Economic Development in Africa, St. Catherine’s College, Oxford, United (2010).
[32] A. S. Ndiaye, Capital Flight and its Determinants in the Franc Zone, African Economic Research Consortium (2011) Research Paper RP 215.
[33] A. S. Ndiaye, Capital Flight from Burkina Faso : Drivers and Impact on Tax Revenue, African Development Review, 28(S1) (2016) 100-112.
[34] L. Ndikumana et J. K. Boyce, Public debts and private assets : Explaining capital flight from sub-Saharan African countries, World Development, 31(1) (2003) 107–30.
[35] L. Ndikumana at J. K. Boyce, New estimates of capital flight from sub-Saharan African countries : Linkages with external borrowing and policy options, Paper Prepared for the Senior Policy Seminar on Capital Flight From sub-Saharan Africa : Implications for Macroeconomic Management and Growth, pp. 30 October 2 November 2007, Pretoria, South Africa (2007).
[36] L. Ndikumana at J. K. Boyce, Capital Flight from North African Countries, PERI Research Report, Amherst, MA : Political Economy Research Institute (2012a).
[37] L. Ndikumana, J. K. Boyce at A. S. Ndiaye, Capital Flight From Africa : Measurement and Drivers, (2015).
[38] L. Ndikumana, Causes and Effects of Capital Flight from Africa : Lessons from Case Studies, African Development Review, pp. 28(S1) (2016) 2-7.
[39] L. Ndikumana et J. K. Boyce, Capital Flight from Africa Updated Methodology and New Estimates, Research Report, Political Economy Research Institute, University of Massachusetts at Amherst( 2018).
[40] North, Institutions, Institutional Change and Economic Performance, Cambridge University. Press, Ostrom, E. (1990).
[41] S. Oluwatobi, I. Olurinola et P. Alege, Innovation in Africa : Why Institutions Matter?, South African Journal of Economics, (2014).
[42] M. H. Pearsan at Y. Shin, Long-Run Structural Modeling, Unpublished Manuscript. University of Cambridge (1995).
[43] K. S. Im, M. H. Pesaran et Y. Shin, Testing for Unit Roots in Heterogenous Panels, DAE, pp. Working Paper 9526, University of Cambridge (1997).
[44] M. H. Pesaran, Estimation and inference in large heterogeneous panels with a mul- tifactor error structure,» Econometrica, 74 (4) (2006) 967-1012.
[45] C. M. Reinhart et S. R. Kenneth, The Aftermath of Financial Crises, American Economic Review, 99(2) (2009a) 466–72.
[46] R. A. Rhodes, Understanding governance, Buckingham and Philadelphia : Open University Press (1997).
[47] M. Schafer, The Music of the Environemen, En el libro : Cox Christopher et Warner D. (Editores), p. audio Culture. Readings in modern music. Continuum.( 2004) NY London. (2004).
[48] S. A. Asongu et J. C. Nwachukwu, Revolution empirics: predicting the Arab spring, Empirical Economics, 51(2) (2016a) 439-482.