Capital Flight and its Determinants: The Case of Ethiopia

Abstract

This study attempts to estimate the volume of capital flight from Ethiopia and its determinants, focusing on economic, institutional, and political determinants. Capital flight is estimated at $31 billion over the 1970-2012 period. On average, the country has lost around half a billion dollars annually under the 'Derg' regime. This amount more than doubled to over 1 billion per annum during the EPRDF regime. The empirical evidence suggests that macroeconomic instability, the degree of financial market deepening, exports, interest rate differentials, political instability, corruption, and debt-creating flows are the most important determinants of capital flight from Ethiopia. The political environment is also found to be crucial. Generally, capital flight was high before violent regime changes and low in the subsequent periods, when regimes were in the process of establishing a firmer grip on power; after this point, however, capital flight began to rise significantly again. The historical analysis points to potential causality running from political factors to capital flight. A strong improvement in economic and political governance will be key to abating the problems of capital flight in Ethiopia.Ã , ÃÃ , Significant at 1% and 5%, respectively;^is also the coefficient of the lagged dependent variable.

Relationship between corruption and capital flight in Kenya: 1998-2018

“…The specification of the capital flight econometric model was supported by the studies conducted by Geda and Yimer (2016), Forson et al (2017), Hasnul and Masih (2016), Alam and Quazi (2004), Gusarova (2009), and Liew et al (2010). The final econometric model of capital flight, therefore, was presented below:…”

Governance, capital flight and industrialisation in Africa

“…It is important to note that whereas the sample consists of 36 African countries, 35 countries may appear in the regression output because of issues in degrees of freedom associated with some variables used in the conditioning information set. na not applicable because at least one estimated coefficient needed for the computation of net effects is not significant and fiscal policy (Muchai and Muchai 2016); drivers of capital flight in Ethiopia (Geda and Yimer 2016) and Madagascar (Ramiandrisoa and Rakotomanana 2016); linkages between capital flight and tax revenue in Burkina Faso (Ndiaye and Siri 2016); public social spending and capital flight in Congo-Brazzaville (Moulemvo 2016); trade misinvoicing and capital flight in Zimbabwe (Kwaramba et al 2016) and lessons from case studies on the causes and consequences of capital flight (Ndikumana 2016). It is relevant to also clarify that the recommendation to boost good governance in order to mitigate capital flight and enhance industrialisation also builds on the fact that governance standards in Africa are comparatively low relative to other continents of the world.…”

Mitigating capital flight through military expenditure: Insight from 37 African countries

“…On the other hand, much of contemporary literature on African capital flight, for instance, has focused on inter alia, lessons from case studies on the causes and effects of capital flight (Ndikumana, 2016) notably: the nexus between fiscal policy and capital flight in Kenya (Muchai & Muchai, 2016), determinants of capital flight in Madagascar (Ramiandrisoa & Rakotomanana, 2016) and Ethiopia (Geda & Yimer, 2016), capital flight and trade misinvoicing in Zimbabwe (Kwaramba et al, 2016) and capital flight in Cameroon; connections between tax revenue and capital flight in Burkina Faso (Ndiaye & Siri, 2016) and the effect of capital flight on public social spending in CongroBrazzaville (Moulemvo, 2016). Our study adds to the growing body of liaterature on African by explicating the thresholds at which such military expenditure can dampen terrorism.…”