Relationship between corruption and capital flight in Kenya: 1998-2018

Abstract

The study established the relationship between corruption and capital flight in Kenya over the period 1998 to 2018. Quarterly time series data for calculation of capital flight and for GDP growth rate and exchange rates were collected from the Central Bank of Kenya and Kenya National Bureau of Statistics. Corruption perception index data was collected from the Transparency International website. Two Autoregressive Distributed-lagged models were fitted. Regression coefficients for corruption were -0.114 and 0.066 in the short run and -0.501 in the long run and the p values were 0.523 and 0.691 and 0.558 respectively, indicating no significant relationship. Regression results showed a coefficient of 0.01 and 0.003 for the Gross Domestic Product growth rate in the short run, and 0.049 in the long run. The p values were 0.670, 0.855 and 0.578 respectively denoting no significant relationship. Regression results showed a coefficient of 0.002 and 0.003 for the exchange rate in the short run, 0.43 for the exchange rate in the long run. The p values were 0.891 and 0.584 and 0.095 respectively indicating that a one % increase in the exchange rate would lead to a 0.043 % increase in capital flight in the long run. Regression results of lagged capital flight on capital flight showed a coefficient of 0.904. The p-value was 0.000 meaning that a one % increase in lagged capital flight would lead to a 0.904 % increase in capital flight. The study recommended that the government devises policies that would prevent further capital flight and generate capital flight reversal.

Keywords: {'name': 'Capital Flight'}, {'name': 'Corruption'}, {'name': 'Exchange Rate'}, {'name': 'GDP Growth Rate'}, {'name': 'Kenya'}

Authors & affiliations

Mercy Mwangi
Affiliation not supplied

Amos Njuguna
Affiliation not supplied

George Achoki
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

DOI: 10.1111/1467-9701.00209

Abotsi, A.K. (2018). Influence of Governance Indicators on Illicit Financial Outflow from Developing Countries. Contemporary Economics, 12 (2), 139-152 https:// doi.org /10.5709/ce.1897-9254.268

DOI: 10.46745/ilma.jbs.2015.11.02.05

Ajayi, I.S. (2007). Dynamics of capital flight: Causes and determinants. Paper prepared for the Senior Policy Seminar on Capital Flight from Sub-Saharan Africa: Implications for Macroeconomic Management and Growth, Pretoria, South Africa, 30 October to 2 November 2007.

DOI: 10.1080/713673164

DOI: 10.1016/0022-1996(89)90052-4

DOI: 10.19030/iber.v11i1.6666

Ali, A. and B. Walters (2011). On the Causes of Capital Flight from Sub-Saharan Africa. University of Manchester Working Papers.

DOI: 10.2139/ssrn.2885742

Barasa, T. (2018). Illicit Financial Flows in Kenya: Mapping of the Literature and Synthesis of the Evidence. www.pasgr.org/wp-content/uploads/2018/.../Kenya-Illicit-Financial-Flows-Report.pdf

DOI: 10.1080/00220380412331322261

DOI: 10.1080/00220380802242453

DOI: 10.1016/j.jimonfin.2015.12.009

DOI: 10.1093/jae/ejh042

Creswell, J. W., Plano Clark, V. L., Gutmann, M and Hanson, W. (2003). Advanced mixed methods research designs. In Handbook on mixed methods in the behavioral and social sciences, ed. A. Tashakkori and C. Teddlie, 209–40. Thousand Oaks, CA: Sage.

Deppler, M. and Williamson, M. (1987). Capital flight: Concepts, measurement and Issues. Staff Studies for the World Economic Outlook. Washington, DC: The International Monetary Fund.

DOI: 10.1108/JES-10-2016-0212

Egbe, O. J. (2015). A Dynamic Analysis of the Impact of Capital Flight on Real Exchange Rate in Nigeria. IOSR Journal of Economics and Finance, 6 (1), 2321–5933

DOI: 10.4337/9781781008058

DOI: 10.1007/BF02925467

DOI: 10.5465/amr.2003.8925227

DOI: 10.1111/j.1467-8268.2009.00226.x

DOI: 10.47963/jobed.2017.06

Gachoki, C. and Nyang ’oro, O. ( 2016). Impact of Capital Flight on Private Investment in Kenya. International Journal of Economics, 1 (2),1 – 15.

DOI: 10.1111/1467-8268.12180

Greene, W. H. (2012, Econometric Analysis, Prentice Hall. 7th ed.

Gusarova, V. (2009). The impact of Capital flight on economic growth. Unpublished Master’s Thesis of the KYIV School of `Economics.

Hasnul, A. G. and Masih, M. (2016). Role of instability in affecting capital flight.Magnitude: An ARDL bounds testing approach. Paper No. 72086, M P R A, Paper No. 72086.

Heggstad, K. and Fjeldstad, O.H. (2010). How banks assist capital flight from Africa: A literature review. Technical report, The Norwegian Agency for Development Cooperation (NORAD).

Hermes, N., Lensink, R. and Murinde, V. (2002). Capital flight, policy uncertainty, and the instability of the international financial system. In A. Mullineux and V. Murinde, eds., Handbook of International Banking. Cheltenham: Edward Elgar (forthcoming) IMF.

DOI: 10.1080/14662043.2014.955981

DOI: 10.2139/ssrn.1341946

Kar, D. and Cartwright-Smith, D. (2010). Illicit Financial Flows from Africa: Hidden Resource for Development. Washington, DC: Global Financial Integrity.

Kar, D and Spanjers, J. (2014). Illicit Financial Flows from Developing Countries: 2003-2012. Global Financial Integrity. Retrieved from www. gfintegrity. Org.

Kindleberger, C. P. (1987). A Historical Perspective,in: Donald R. Lessard, and John Williamson (eds.), Capital Flight and Third World Debt, Washington DC, Institute for International Economics, 7-26.

Kipyegon, L. (2004). Determinants of capital flight from kenya. Unpublised masters thesis. Kenyatta University.

DOI: 10.35188/UNU-WIDER/2015/023-2

DOI: 10.1080/10168730601027161

Letete, E. M. (2015). Essays on Institutions and Economic Development in Kenya: Degree of Doctor of Philosophy Thesis. University of Cape Town.

Letete, E. and Sarr, M. (2017). Illicit Financial Flows and Political Institutions in Kenya, Working Paper Series N° 275, African Development Bank, Abidjan, Côte d’Ivoire.

Liew, S.L. (2016). Review on Determinants of Capital Flight Review on Determinants of Capital Flight. M P A. Retrieved from https://mpra.ub.uni-muenchen.de/70445/

Lucas, R. E. (1990). Why Doesn’t Capital Flow from Rich to Poor Countries? American Economic Review, 80 (2), 92-9

Moeva, Z. S.A. (2007). Determinants of Capital Flight in Kenya (1987-2007). Unpublished Master thesis, University of Nairobi

DOI: 10.1111/1467-8268.12185

DOI: 10.1111/1467-8268.12183

DOI: 10.1111/1467-8268.12178

Mudida, R. (2011). Empirical Aspects Of Capital Flight in Kenya, 1970-2009. Nairobi: Navarra Center for International Development Working Paper Nº 08/2011.

Ndiaye, A.S. (2011). Capital Flight and its Determinants in the Franc Zone. AERC Research Paper No.215. African Economic Research Consortium, Nairobi.

Ndiaye, A.S. (2014). Is Capital Flight Decisive in Explaining Economic Growth Performance in the AfricanFranc Zone?” GDN 15 TH Annual Global Development Conference on Structural Transformation in Africa and Beyond. 18-20 June 2014, Accra, Ghana.

DOI: 10.1016/S0305-750X(02)00181-X

Ndikumana, L. and Boyce, J. K. (2008). New Estimates of Capital Flight from Sub-Saharan African Countries: Linkages with External Borrowing and Policy Options. PERI/UMass, Working Paper 166.

DOI: 10.2139/ssrn.2202215

DOI: 10.1080/02692171.2010.483468

Ndikumana, L. and Boyce, J. K. (2012). Capital Flight from North African Countries. PERI Research Report. Amherst, MA: Political Economy Research Institute

DOI: 10.35188/UNU-WIDER/2016/101-7

Ndikumana, L. and Boyce, J. K. (2018). Capital Flight from Africa: Updated Methodology and New Estimates PERI/UMass, Working Paper.

Nkurunziza, D. J. (2012). Illicit Financial Flows: A Constraint on Poverty Reduction in Africa. Association of Concerned Africa. Scholars Bulletin, 87, 15-21.

DOI: 10.1093/acprof:oso/9780198718550.003.0004

Ndikumana (eds.), Capital Flight from Africa: Causes, Effects and Policy Issues (pp. 81–110), Oxford University Press, Oxford.

Ng’eno, N.K. (2000). Capital Flight in Kenya. In: Ajayi, I. and Khan, M. (eds). External Debt and Capital Flight in Sub-Saharan Africa. Washington, D.C.: The IMF Institute., 300- 321.

DOI: 10.31686/ijier.vol3.iss8.407

Onodugo, V. A., Kalu, I. E., Anowor, O. F., and Ukweni, N. O. (2014). Is Capital Flight Healthy for Nigerian Economic Growth? An Econometric Investigation. Journal of Empirical Economics, 3(1), 10–24.

DOI: 10.1142/S0217590816500429

DOI: 10.1353/jda.2018.0053

Scharfstein, D. S, and Jeremy C, S. (1990). Herd Behaviour and Investment. Amercian Economic Review, 80, 465-479. https://doi.org/10.1.1.184.4434& &t&rep=rep1ype=pdf

Smith, A. (1976). An Inquiry into the Nature and Causes of the Wealth of Nations, ed. by RH. Campbell and AS. Skinner, 2 vol. (Oxford: Clarendon Press).

Tashakkori, A. and Teddlie. C. (1998). Mixed methodology: Combining qualitative and quantitative approaches. Applied Social Research Methods Series, vol. 46. Thousand Oaks, CA:Sage.

Transparency International, (2016). Corruption Perceptions Index 2016. Retrieved from https://www.transparency.org/news/feature/corruption_perceptions_index_2016

Trabelsi, M.A., Kharrat, O., Feki, R. (2018). The Root Causes of Capital Flight in Tunisia: An Empirical Investigation. International Journal of Social Science and Economic Research, 3, (9).

Uddin, M. J., Yousuf, M. and Islam, R. (2017). Capital flight affecting determinants in Bangladesh: An Econometric Estimation. International Journal of Economics, Commerce and Management 8. Sage

Waris, A. and Fröberg, K. F. (2011). Bringing the billions back How Africa and Europe can end illicit capital flight. Stockholm: Forum Syd förlag.

DOI: 10.11648/j.eco.20160505.11