Capital Flight and its Impact on Economic Growth: the Case of WAEMU Countries

Abstract

This paper estimates the volume of capital flight using the residual method, and analyzes the impact of capital flight on economic growth in the West African Economic and Monetary Union (WAEMU). Over the period 1970 to 2016, total real capital flight from these countries is found to be positive and significant with a magnitude that amounts to 58655.28 million constant dollars, representing 57.5 percent of GDP. Four countries have experienced significant real capital flight over the past four decades, namely Ivory coast, Niger, Burkina Faso and Senegal. Thus, through the use of dynamic fixed effects estimation, it is found that in the long run, capital flight significantly reduces economic growth in countries with positive capital flight and the adverse effect seems to be unquestionably aggravated with investment in the case of these groups of countries. Furthermore, the paper recommends that the authorities show commitment to reducing capital flight by improving governance, strengthening the quality of institutions, and promoting a stable policy environment.