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

Journal of Industry, Competition and Trade, 17(3), pp. 305-323 (September, 2017)

27 Pages Posted: 15 Dec 2016 Last revised: 9 Aug 2017

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Jacinta Nwachukwu

Coventry University

Date Written: Apirl 15, 2016

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.

Keywords: Econometric modelling; Capital flight; Governance; Africa

JEL Classification: C50; E62; F34; O55; P37

Suggested Citation

Asongu, Simplice and Nwachukwu, Jacinta, Fighting Capital Flight in Africa: Evidence from Bundling and Unbundling Governance (Apirl 15, 2016). Journal of Industry, Competition and Trade, 17(3), pp. 305-323 (September, 2017). Available at SSRN: https://ssrn.com/abstract=2885742 or http://dx.doi.org/10.2139/ssrn.2885742

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Jacinta Nwachukwu

Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom

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