Determinants of capital flight from Kenya
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Date
2014-01-06
Authors
Kipyegon, L.
Journal Title
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Abstract
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.
Description
Department of Applied Economics,69p. The HG 3891 .K56 2004
Keywords
Capital movements-Kenya