Doing Business and capital flight: role of financial development

Abstract

Purpose The purpose of this paper is to investigate the effect of financial development on the Doing Business and capital flight contagion. And further, this study determines the threshold beyond which financial development reduces capital flight. Design/methodology/approach A two-step system generalized methods of moment empirical model with linear interaction between Doing Business and financial development was estimated. This study used data on 26 countries over 12 years (2004–2015). Findings The main results indicated that, although Doing Business had a significant positive effect on capital flight, the interactive term had a significant adverse effect on capital flight. This outcome suggests that to reduce capital flight, a well-reformed and efficient business environment should be embedded with an efficient, stable and well-developed financial sector. In addition, the authors found only South Africa has a robust financial framework beyond the threshold of 0.383, whereas Congo, Rep., Rwanda, Malawi, Sierra Leone and Congo, Dem. Rep. had the weakest financial system and sector in Sub-Saharan Africa. Research limitations/implications This study recommends that policymakers should initiate policies that would enhance financial development. Originality/value This study’s main contributions are that the authors estimated the threshold beyond which financial development helps the business environment reduce the rate of capital flight. Further, the authors have shown that financial development is a catalyst to propel the deterioration powers of the business environment against capital flight. Also, the authors have estimated the long-run effect of the variables of interest on capital flight.

Foreign Direct Investment and Economic Growth in Kenya: A Comprehensive Analysis

“…Blin & Ouattara [14] 1975-2000 for Mauritius ARDL An increase in FDI leads to an increase in economic growth Mamingi & Kareem [18] 1988-2013 for Caribbean states GMM FDI is not significant Sarker & Khan [19] 1972-2017 for Bangladesh ARDL An increase in FDI leads to an increase in economic growth Wiredu et al [20] 1998-2017 for Côte d'Ivoire, Ghana, Nigeria, and Senegal OLS FDI has a negative effect on economic growth Odhiambo (2022) 1980-2018 for African states ARDL An increase in FDI leads to an increase in economic growth Ofori & Asongu [5] 1990-2020 for Sub-Saharan African states GMM An increase in FDI leads to an increase in economic growth Benetrix et al [1] 1990-2009 for Developed and developing states OLS An increase in FDI leads to an increase in economic growth Mawutor et al [21] 1980-2018 for Ghana ARDL FDI has a negative effect on economic growth Okello & Badj [9] 1970-2019 for Kenya OLS FDI is not significant…”

“…A bounds cointegration test was deployed to check for the presence of longrun relationships in the series based on a 5 per cent level of significance. The use of the bound test allows the cointegration link to be ascertained by OLS after the lag order of the model is identified (Mawutor et al, 2023). Before estimation, the lag length was identified and the best model estimation criterion was chosen.…”

Inflation and energy poverty: threshold effect of governance quality in Africa

“…Thirdly, the GMM was adopted on grounds of empirical test. According to Roodman (2009); Asongu et al (2018a, b) and Mawutor et al (2022) when the correlation between the explained variable and its own lag is more than 0.8, a correlation coefficient of 0.8 indicates that there is persistence in the dynamic panel data (Tchamyou and Asongu, 2017;Tchamyou et al, 2019;Blundell and Bond, 1998). However, the GMM estimator has two variants: the difference and system estimators.…”

Promoting Renewable Energy Consumption in Sub-Saharan Africa: How Capital Flight Crowds Out the Favorable Effect of Foreign Aid

“…Furthermore, it is posited that funding agencies largely motivate their decision on foreign aid recipients by assessing various developing and poor countries along several comparative criteria, which include, existing levels of funding for development projects. Looking at it from a political angle, issues related to public administration, public accountability as well as domestic resource mobilization are largely contingent on the abilities of recipient nations to effectively manage the financial resources that are received (Nchofoung, Kengdo, et al 2022; Ohno and Niiya 2004; Ruben 2012), especially when concerns about capital flight that limit funding opportunities are very apparent (Asongu et al 2022; Mawutor et al 2022). By analogy, whether foreign aid is provided to a given country or not, also rests on existing development of renewable energy prospects in the light of global targets such as SDGs and existing levels of funding that are contingent on attendant levels of capital flight.…”