Causality Between External Debt and Capital Flight in Sub-Saharan Africa [electronic resource] / Fofack, Hippolyte

By: Fofack, HippolyteContributor(s): Fofack, HippolyteMaterial type: TextTextPublication details: Washington, D.C., The World Bank, 2009Description: 1 online resource (31 p.)Subject(s): Assets | Bankruptcy and Resolution of Financial Distress | Banks and Banking Reform | Capital flight | Central bank | Competitiveness | Correlation analysis | Currencies and Exchange Rates | Debt | Debt Markets | Deposit Insurance | Devaluation | Development assistance | Disequilibrium | Economic theory | Economic Theory and Research | Emerging Markets | Exports | External Debt | Finance and Financial Sector Development | GDP | Growth rate | Income | Interest rate | International Economics & Trade | Law and Development | Macroeconomic management | Macroeconomics and Economic Growth | Moral hazard | Per capita income | Private Sector Development | Productivity growth | Regression analysis | Settlement of Investment Disputes | Strategic Debt ManagementAdditional physical formats: Fofack, Hippolyte.: Causality Between External Debt and Capital Flight in Sub-Saharan Africa.Online resources: Click here to access online Abstract: Over the past few decades, the foreign liabilities of the majority of countries in Sub-Saharan Africa have grown dramatically, propelling most nations into the status of Highly Indebted Poor Countries, when these liabilities reached unsustainable levels in the 1990s. At the same time, increases in capital flight from the region followed a parallel trend, leading scholars to draw on "revolving door" models to explain the apparent positive covariation of external debt and capital flight in the region. This paper investigates the causality between external debt and capital flight in a cross-section of Sub-Saharan African countries using co-integration and error-correction models. Although dual causality, which is consistent with the revolving door hypothesis, cannot be rejected for the majority of countries, empirical evidence highlights the lead of external debt over capital flight. The significance of error-correction terms points to a long-run co-integrating relationship between external debt and capital flight in a large number of countries.
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Over the past few decades, the foreign liabilities of the majority of countries in Sub-Saharan Africa have grown dramatically, propelling most nations into the status of Highly Indebted Poor Countries, when these liabilities reached unsustainable levels in the 1990s. At the same time, increases in capital flight from the region followed a parallel trend, leading scholars to draw on "revolving door" models to explain the apparent positive covariation of external debt and capital flight in the region. This paper investigates the causality between external debt and capital flight in a cross-section of Sub-Saharan African countries using co-integration and error-correction models. Although dual causality, which is consistent with the revolving door hypothesis, cannot be rejected for the majority of countries, empirical evidence highlights the lead of external debt over capital flight. The significance of error-correction terms points to a long-run co-integrating relationship between external debt and capital flight in a large number of countries.

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