Causality between External Debt and Capital Flight in Sub-Saharan Africa

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.

Bibliographic Details

Main Author:	Fofack, Hippolyte
Language:	English
Published:	2009-09-01
Subjects:	ACCESS TO DEBT, ACCOUNTING, ACCUMULATION OF DEBT, ARREARS, ASSETS, AUTOREGRESSION, BALANCE OF PAYMENT, BALANCE OF PAYMENT CRISIS, BALANCE OF PAYMENTS, BALANCE OF PAYMENTS CRISIS, BALANCE-OF-PAYMENTS CRISES, BANK DEBT, BANK POLICY, CAPITAL CONTROLS, CAPITAL FLIGHT, CAPITAL FLOWS, CAPITAL FORMATION, CAPITAL INFLOWS, CAPITAL INFUSION, CAPITAL OUTFLOWS, CAPITAL STOCK, CENTRAL BANK, COIN, COMPETITIVENESS, CORRELATION ANALYSIS, CORRELATION COEFFICIENT, COUNTRY RISK, COUNTRY RISKS, CREDIBILITY, CREDITOR, CREDITORS, CURRENCY DEVALUATION, CURRENT ACCOUNT, CURRENT ACCOUNT DEFICIT, CURRENT ACCOUNT DEFICITS, CUSTOMS DUTIES, DEBT, DEBT CRISIS, DEBT DISBURSEMENTS, DEBT OVERHANG, DEBT RATIO, DEBT RATIOS, DEBT REDUCTION, DEBT RELIEF, DEBT SERVICE, DEBT SERVICE PAYMENTS, DEBT STRATEGY, DEFICIT FINANCING, DEPENDENT VARIABLE, DEPRECIATION, DESCRIPTIVE STATISTIC, DEVALUATION, DEVELOPING COUNTRIES, DEVELOPMENT ASSISTANCE, DEVELOPMENT BANK, DISBURSEMENT, DISEQUILIBRIUM, DOMESTIC AGENTS, DOMESTIC ARREARS, DOMESTIC CREDITORS, DOMESTIC DEBT, DOMESTIC DEBT MARKETS, DOMESTIC GOODS, ECONOMETRIC MODELS, ECONOMIC DEVELOPMENT, ECONOMIC DOWNTURNS, ECONOMIC GROWTH, ECONOMIC RESEARCH, ECONOMIC THEORY, ERROR CORRECTION MODEL, ERROR CORRECTION MODELS, ERROR CORRECTION TERM, ERROR CORRECTION TERMS, ERROR TERM, EXCHANGE RATES, EXOGENOUS FACTORS, EXPENDITURE, EXPENDITURES, EXPORT DIVERSIFICATION, EXPORTS, EXPOSURE, EXTERNAL BORROWING, EXTERNAL BORROWINGS, EXTERNAL DEBT, EXTERNAL DEBT ACCUMULATION, EXTERNAL DEBT INDICATORS, EXTERNAL DEBT SERVICES, EXTERNAL DEBT STOCK, EXTERNAL DEBT SUSTAINABILITY, EXTERNAL FINANCE, EXTERNAL FINANCING, EXTERNAL INDEBTEDNESS, EXTERNAL LIABILITIES, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCIAL DEVELOPMENT, FINANCIAL MARKET, FISCAL DEFICITS, FISCAL POLICY, FOREIGN AID, FOREIGN CREDITORS, FOREIGN CURRENCY, FOREIGN EXCHANGE, FOREIGN INDEBTEDNESS, FOREIGN LIABILITIES, FOREIGN RESERVES, FUTURE RESEARCH, GDP, GLOBAL CAPITAL, GLOBAL MARKET, GOVERNMENT GUARANTEE, GROSS CAPITAL FORMATION, GROWTH RATE, GROWTH RATES, HOLDING, HOLDINGS, IMPLICIT INSURANCE, IMPORT, IMPORT RESTRICTIONS, IMPORTS, INCOME, INCOME INEQUALITY, INDEBTED COUNTRIES, INFLATION, INFLATION TAX, INSOLVENCY, INSTRUMENT, INSURANCE, INSURANCE COVERAGE, INTEREST EARNINGS, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL DEBT, INTERNATIONAL FINANCIAL ARCHITECTURE, INTERNATIONAL FINANCIAL INSTITUTIONS, INTERNATIONAL FINANCIAL SYSTEM, INTERNATIONAL MONEY, INVESTMENT BOOMS, LOCAL CURRENCY, LONG-RUN EQUILIBRIUM, LOW DEBT, LOW DEBT RATIOS, LOW-INCOME COUNTRIES,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090908153237 https://hdl.handle.net/10986/4235
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