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DETERMINANTS OF CAPITAL FLIGHT AND CAPITAL MOVEMENT THROUGH TRADE MISPRICING: THE AFRICAN CASE

Maria E. de Boyrie, Ph.D.

New Mexico State University, New Mexico, USA

ABSTRACT

This study attempts to accomplish two things. First, it tries to establish the determinants of capital flight and capital movement through trade misinvoicing from selected African countries in order to ascertain whether the same factors could explain both types of capital movement. Second, it attempts to determine whether Granger causation exists between capital movement through trade misinvoicing and capital flight. Data for selected countries were combined into geographical, economic, and monetary regions. For 19902005, the amount of capital flight from the African Continent was estimated to be $499.8 billion and $438.9 billion for the Sub-Saharan region. Using 21 explanatory variables, the results showed that variables that explain capital flight do not always explain capital movement and vice versa. The independent variables tended to explain the dependent variables in a few cases, implying that the reason for capital flight and capital movement was other than for investment purposes. Overall causality was found to exist between the dependent variables, mostly in the form of feedback. Yet, the relationship was mostly transitory with a long-term relationship existing in only few cases. African governments need to establish stronger trade policies and create incentives for individuals and institutions not to move the desperately needed capital out of the continent.

Key words: capital flight, capital movement, trade mispricing, Africa, causality

JEL Codes: F14, F49