Determinants of capital flight from Kenya
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This study investigates the determinants of capital flight from Kenya over the sample period 1971 to 2001. Although evidence available indicates fluctuations in the level of capital flight from Kenyan economy since early 1970s, it is unclear what factors determine capital flight from Kenya. The specific objectives of this study were to identify factors that significantly determine the level of capital flight from Kenya and to draw recommendations based on the study findings. Capital flight model was specified based on the portfolio adjustment theory. Augmented Dickey Fuller stationarity test results revealed that real capital flight was stationary at level ~ hence it was only possible to estimate short run capital flight model. This study emp loyed time series data over the sample period 1971 to 2001, and ordinary least square method was used to estimate the model. Empirical findings based on residual measure to capital flight indicate external borrowing as the most significant determinant of capital flight from Kenya. it also revealed that capital flight tends to persist overtime once it occurs. Furthermore, the results indicated that real exchange rate, real growth rate, inflation rate and a proxy measure of financial development, M2/GDP; are also significant determinants of capital flight from Kenya. Irnportant policy implications drawn from the study findings are that: Kenya government should ensure transparency and accountability with· regard to foreign borrowing and management of borrowed funds. Moreover, it is important to restore public confidence ill the government and sustainability of macroeconomic policies, and to create a stable and favourable investment environment. This in turn, requires a realistic exchange rate, positi ve but moderate real interest rates and robust economic growth.