Greed of the elite; capital flight from a fragile country: case of Burundi

Abstract

Purpose This study aims to undertake an institutional analysis of capital flight and examine the drivers of capital flight from Burundi. Design/methodology/approach Given the episodes of political instability and poor governance which have characterized Burundi’s landscape in the past decades, coupled with macroeconomic instability which has been prevailing, political, economic and institutional factors are used to explain the trend and magnitude of capital flight which were recorded. An econometric analysis using robust least squares is also used to examine the determinants of capital flight from Burundi. Findings The estimation results seem to be sensitive to capital flight measurement used, but in general, they suggest that external debt, political instability and wars, as well as exports, are the main drivers of capital flight from Burundi. Research limitations/implications The findings of this study imply that to discourage capital flight, the government of Burundi should promote peace and political stability. In addition, more responsibility, more transparency and accountability are required from the government of Burundi in managing resources from external debt. Moreover, some actions are needed to fight trade misinvoicing, which was seen to be a major channel of capital flight from Burundi. It is however to be acknowledged that our econometric analysis results might not be robust because of data limitations related to data availability on capital flight for only the period 1985-2013. Originality/value This study contributes to the existing capital flight literature in two ways. First, by undertaking the first ever country-specific study focusing on Burundi, and second, by undertaking an institutional analysis of capital flight to understand the political, economic and institutional issues behind capital flight from Burundi. The focus in this study is on Burundi because of the burden that capital flight imposes on the country already impoverished.

The vulnerable financial issue: Capital flight in Indonesia

“…Country risk, political turmoil, corruption and war are non-macroeconomic determinants that lead to capital flight (Geda & Yimer, 2016;Baek & Yang, 2010;Ndikumana, etc., 2014). Some research also have shown that economic crises, political risks and corruption are the main determinants of capital flight (Gunter, 2017;Cheung, Steinkamp and Westermann, 2016;Ndoricimpa, 2018;Efobi and Asongu, 2016).…”

Determinants of Capital Flight in the East African Community

“…As a result, the capital flight rate reduced to 1.8 percent of the total real GDP which kept a figure below 5.0 percent up to 2014(World Bank, 2017). However, according to Ndoricimpa (2018), political instability and corruption that rocked the country in 2014 led to increased capital flight which was averagely above 10 percent of the total real GDP from the year 2014 to 2018.…”

Co-Movement between Macroeconomic Variables and Capital Flight

“…Alam and Quazi (2003) state that political instability as a most important and dominant cause of capital flight along with other macroeconomic factors for Bangladesh. Ndoricimpa (2018) finds that political and economic instability, wars and exports as a greater cause of major capital flight in Burundi. Baek and Yang (2010) identify the institutional quality as a key determinate of capital flight for developing countries.…”