Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia

 

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dc.contributor.advisor Ellyne, Mark en_ZA
dc.contributor.author Mbewe, Samson en_ZA
dc.date.accessioned 2015-12-04T18:06:32Z
dc.date.available 2015-12-04T18:06:32Z
dc.date.issued 2015 en_ZA
dc.identifier.citation Mbewe, S. 2015. Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia. University of Cape Town. en_ZA
dc.identifier.uri http://hdl.handle.net/11427/15594
dc.description.abstract 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. en_ZA
dc.language.iso eng en_ZA
dc.subject.other Applied Economics en_ZA
dc.title Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia en_ZA
dc.type Master Thesis
uct.type.publication Research en_ZA
uct.type.resource Thesis en_ZA
dc.publisher.institution University of Cape Town
dc.publisher.faculty Faculty of Commerce en_ZA
dc.publisher.department School of Economics en_ZA
dc.type.qualificationlevel Masters
dc.type.qualificationname MCom en_ZA
uct.type.filetype Text
uct.type.filetype Image
dc.identifier.apacitation Mbewe, S. (2015). <i>Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,School of Economics. Retrieved from http://hdl.handle.net/11427/15594 en_ZA
dc.identifier.chicagocitation Mbewe, Samson. <i>"Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia."</i> Thesis., University of Cape Town ,Faculty of Commerce ,School of Economics, 2015. http://hdl.handle.net/11427/15594 en_ZA
dc.identifier.vancouvercitation Mbewe S. Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia. [Thesis]. University of Cape Town ,Faculty of Commerce ,School of Economics, 2015 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/15594 en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Mbewe, Samson AB - 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. DA - 2015 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2015 T1 - Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia TI - Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia UR - http://hdl.handle.net/11427/15594 ER - en_ZA


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