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Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia
The problem of capital flight presents an interesting paradox towards capital accumulation in Sub-Saharan Africa. Though Africa has been labelled as "the rising continent" by various researchers, we continue to see capital flight and its adverse effects extend beyond the lack of domestic investment...
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| Format: | Thesis |
| Language: | English |
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School of Economics
2015
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| _version_ | 1867613222237896704 |
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| access_status_str | Open Access |
| author | Mbewe, Samson |
| author2 | Ellyne, Mark |
| author_browse | Ellyne, Mark Mbewe, Samson |
| author_facet | Ellyne, Mark Mbewe, Samson |
| author_sort | Mbewe, Samson |
| collection | Thesis |
| description | The problem of capital flight presents an interesting paradox towards capital accumulation in Sub-Saharan Africa. Though Africa has been labelled as "the rising continent" by various researchers, we continue to see capital flight and its adverse effects extend beyond the lack of domestic investment capital, to sluggish economic growth and disquieting poverty rates. This paradox highlights the importance of understanding the drivers of capital flight from Africa. Among the many postulated determinants, this study investigates the effect of the exchange rate on capital flight using 3 case studies from Nigeria, South Africa and Zambia for the period 1970 to 2010 . By employing Granger's (1969) causality test, we investigate the causal relation between capital flight and the exchange rate. We further use the Johansen (1988) Method of Cointegration to determine the existence of a long run relationship and estimate a Vector Error Correction Model (VECM) to determine the short run dynamics. Our granger causality test results suggest that the direction of causality between capital flight and the real exchange rate only holds in the period under analysis and therefore, it should not be assumed to hold in different time periods. Our main findings suggest that capital flight from Nigeria, South Africa and Zambia is habitually motivated by portfolio considerations. We find that capital flight from Nigeria and South Africa is driven by expected currency depreciation while capital flight from Zambia is driven by expected currency appreciation in the long run. Our other findings suggest that other macroeconomic policy errors in the form of inflation unpredictability and foreign direct investment also increase capital flight from Nigeria, South Africa and Zambia. We also find that political factors have a significant role in determining capital flight from Nigeria, South Africa and Zambia. We however find inconclusive evidence of the short run effects in all three countries. It is recommended that the imposition of efficient exchange controls can curb capital flight when implemented concurrently with effective macroeconomic management practices by the fiscal authorities. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/15594 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:42.829Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2015 |
| publishDateRange | 2015 |
| publishDateSort | 2015 |
| publisher | School of Economics |
| publisherStr | School of Economics |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/15594 Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia Mbewe, Samson Ellyne, Mark Applied Economics The problem of capital flight presents an interesting paradox towards capital accumulation in Sub-Saharan Africa. Though Africa has been labelled as "the rising continent" by various researchers, we continue to see capital flight and its adverse effects extend beyond the lack of domestic investment capital, to sluggish economic growth and disquieting poverty rates. This paradox highlights the importance of understanding the drivers of capital flight from Africa. Among the many postulated determinants, this study investigates the effect of the exchange rate on capital flight using 3 case studies from Nigeria, South Africa and Zambia for the period 1970 to 2010 . By employing Granger's (1969) causality test, we investigate the causal relation between capital flight and the exchange rate. We further use the Johansen (1988) Method of Cointegration to determine the existence of a long run relationship and estimate a Vector Error Correction Model (VECM) to determine the short run dynamics. Our granger causality test results suggest that the direction of causality between capital flight and the real exchange rate only holds in the period under analysis and therefore, it should not be assumed to hold in different time periods. Our main findings suggest that capital flight from Nigeria, South Africa and Zambia is habitually motivated by portfolio considerations. We find that capital flight from Nigeria and South Africa is driven by expected currency depreciation while capital flight from Zambia is driven by expected currency appreciation in the long run. Our other findings suggest that other macroeconomic policy errors in the form of inflation unpredictability and foreign direct investment also increase capital flight from Nigeria, South Africa and Zambia. We also find that political factors have a significant role in determining capital flight from Nigeria, South Africa and Zambia. We however find inconclusive evidence of the short run effects in all three countries. It is recommended that the imposition of efficient exchange controls can curb capital flight when implemented concurrently with effective macroeconomic management practices by the fiscal authorities. 2015-12-04T18:06:32Z 2015-12-04T18:06:32Z 2015 Master Thesis Masters MCom http://hdl.handle.net/11427/15594 eng application/pdf School of Economics Faculty of Commerce University of Cape Town |
| spellingShingle | Applied Economics Mbewe, Samson Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia |
| thesis_degree_str | Master's |
| title | Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia |
| title_full | Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia |
| title_fullStr | Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia |
| title_full_unstemmed | Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia |
| title_short | Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia |
| title_sort | capital flight and the role of exchange rates in nigeria south africa and zambia |
| topic | Applied Economics |
| url | http://hdl.handle.net/11427/15594 |
| work_keys_str_mv | AT mbewesamson capitalflightandtheroleofexchangeratesinnigeriasouthafricaandzambia |