The dynamics of corruption, capital flight and economic growth with panel evidence from Sub-Saharan Africa (SSA)

Egbulonu, Alloysius Joseph

Abstract

This PhD thesis represents a contribution to the literature on the dynamics of corruption, capital flight and economic growth. It is made up of three empirical essays on corruption, capital flight and economic growth with a particular focus on sub-Saharan African countries. With the exception of chapters one, two and chapter six, which sets out the contextual background and summary findings with policy implications, each of the chapters (three, four and five) can be considered as an independent or standalone piece of work.
Our chapter three dwells on understanding the determinants of corruption; it remains a major concern of most economists and policymakers across the globe and especially those working in developing countries. This concern is not helped by the fact that the uncertainty around the theoretical and empirical approaches to studying corruption has created more ambiguity about its determinants. Many variables have been proposed as robust determinants of corruption by past studies with conflicting outcomes. Using panel data covering 31 sub-Saharan African countries from 1984-2013, this chapter applies Extreme Bounds Analysis (EBA) to identify robust determinants of corruption within the region. We consider 60 potential economic, political and socio-cultural determinants and find that the following variables of ethnolinguistic fractionalisation, internal conflict, bureaucratic quality, democratic accountability, government stability are some of the strongest determinants of corruption in sub-Saharan Africa for the periods of 1984-2013 that we studied.
Chapter four of this thesis uses panel data from 31 countries in sub-Saharan Africa over a 30-year period (1984-2013) to investigate the impact of corruption on economic growth in the region. Existing literature from past studies has paid little attention to the possible existence of systemic macro-level variations in corruption’s impact on economic growth along income lines in SSA. The chapter examines whether the impact of corruption on economic growth vary systematically depending on income. After looking at the entire sample, we further decompose the entire region using the World Bank income classifications of low-income countries (LIC), lower-middle-income countries(LMIC) and upper-middle-income countries(UMIC) to do an in-depth analysis of the impact of corruption on economic growth across these classifications. Our results indicate that there are large, statistically significant differences in the impact of corruption on economic growth and development in the entire region and across the different income level classifications. The largest negative impact of corruption on economic growth is found in 18 low-income countries, followed by 13 lower-middle income-countries, and while the effect on the 5 upper-middle-income countries, though negative, but is not statistically significant. Overall, the effect of corruption on economic growth across the whole region is negative. The results are robust to different econometric specifications as well as conditioning variables. Our results also have interesting policy implications for economic growth in the whole region and especially in low-income countries.
Chapter five of this thesis presents an empirical investigation into the impact of corruption on economic growth in the presence of capital flight activities. Using a panel of 25 countries from sub-Saharan Africa (SSA) for the period of 1986-2010, the analysis reveals that corruption and capital flight have both independent and combined effects on economic growth; the corruption effect is found to be consistently negative, and the capital flight effect is mixed (both negative and positive effects). We, however, find that the combined effects of corruption and capital flight are consistently negative, which indicates that the overall negative effect of capital flight on economic growth is mainly driven by corruption. Furthermore, using portfolio choice theory of asset allocation, we introduce the corruption variable for the first time as an important determinant of capital flight to test one of our key hypotheses, and our findings across different specifications of the regression equations show that the corruption coefficients are positive and statistically significant at the conventional levels. These results confirm our hypothesis that the nature of corruption in SSA is such that it encourages and promotes capital flight overall in the region.

Citation

Egbulonu, A. J. (2018). The dynamics of corruption, capital flight and economic growth with panel evidence from Sub-Saharan Africa (SSA). (Thesis). University of Hull. Retrieved from https://hull-repository.worktribe.com/output/4224493

• Thesis Type: Thesis
• Deposit Date: Dec 6, 2022
• Publicly Available Date: Feb 24, 2023
• Keywords: Economics
• Public URL: https://hull-repository.worktribe.com/output/4224493
• Additional Information: Business School, The University of Hull
• Award Date: Sep 1, 2018