New Estimates of Capital Flight from Sub-Saharan African Countries: Linkages with External Borrowing and Policy Options

James Boyce and Leonce Ndikumana

Working Papers from Political Economy Research Institute, University of Massachusetts at Amherst

Abstract: Even as African countries became increasingly indebted from 1970 to 2004, they experienced large-scale capital flight. Some of this was legitimately acquired capital fleeing economic and political uncertainties; some was illegitimately acquired wealth spirited to safer havens abroad. This paper presents new estimates of the magnitude and timing of capital flight from 40 sub-Saharan African countries and analyzes its determinants, including linkages to external borrowing. Our results confirm that sub-Saharan Africa is a net creditor to the rest of the world, in that the subcontinent’s private external assets exceed its public external liabilities: total capital flight amounted to $420 billion (in 2004 dollars), compared to the external debt of $227 billion. Econometric analysis indicates that for every dollar in external loans to Africa in this period, roughly 60 cents flowed back out as capital flight in the same year, a finding that suggests the existence of widespread “debt-fueled” capital flight. The results also show a debt-overhang effect, as increases in the debt stock spur additional capital flight in later years. In addition to policies for recovery of looted wealth and repatriation of externally held assets, we discuss the need for policies to differentiate between legitimate and “odious” debts, both to ease current burdens and to improve international financial governance in the future.

Keywords: capital flight; external indebtedness; stolen assets; odious debt (search for similar items in EconPapers)
JEL-codes: F21 F33 F34 F55 H26 O16 O24 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-afr, nep-dev and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (101)

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