Macroeconomic Volatility and Capital Flights in Sub-Saharan Africa: A Dynamic Panel Estimation of some Selected HIPC Countries

Abstract

For several years, illicit financial outflows though unobservable have remained rampant in the sub-Saharan Africa (SSA) sub-region. This paper examines whether macroeconomic volatilities as perceived by domestic investors in the sub-region have any influence on these outflows taking some selected Heavily Indebted Poor Countries (HIPC) and dataset for the period 1990 to 2012 as the case study. In addition, the study employs a Generalized Autoregression Heteroscedasticity (GARCH) model and Panel Autoregressive Distributed Lag model in its estimation. The outcomes of the econometric investigation, which reflects the current situation in the sub-region, support the view that domestic investors will withdraw their investments and other financial holdings from the domestic economy if they perceived present and future government policies to be volatile. These results suggest that government in HIPC Countries in SSA should focus on stabilising their macroeconomic and political situation if they want to reduce the outflow of domestic capital.