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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:The Effect of Financial Liberalization on Capital Flight in African Economies
Authors:Lensink, RobertISNI
Hermes, Niels
Year:1998
Periodical:World Development
Volume:26
Issue:7
Period:July
Pages:1349-1368
Language:English
Geographic terms:Subsaharan Africa
Africa
Subjects:banking
capital movements
financial policy
Development and Technology
Economics and Trade
External link:https://doi.org/10.1016/S0305-750X(98)00042-4
Abstract:This paper assesses the effects of financial liberalization on capital flight in African economies. A portfolio model, in which capital flight is one of the assets, is estimated on a sample of nine sub-Saharan African countries (Côte d'Ivoire, Ghana, Kenya, Madagascar, Malawi, Mauritius, Nigeria, Rwanda and Sierra Leone) for 1970-1991. The estimation results suggest that financial liberalization induces a reduction in capital flight. After augmenting the model with submodels for the banking sector, the government sector and the external sector, the authors conduct simulation experiments involving an interest rate deregulation, a decrease in reserve requirements and a change in exchange rate policy. The simulation results show that capital flight is reduced by all the three financial liberalization measures. The effects, however, are small. Considering both the estimation and simulation results, the authors conclude that financial liberalization policies are useful in attempts to reduce capital flight in African economies, but 'per se' the policies may not be the panacea. App., bibliogr.
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