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The Institutional Environment and the Link between Capital Flows and Capital Flight in Cameroon
Author(s) -
Gankou JeanMarie,
Bendoma Marius,
Sow Moussé Ndoye
Publication year - 2016
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12182
Subject(s) - capital flight , external debt , capital (architecture) , monetary economics , foreign direct investment , economics , debt , liberian dollar , private capital , language change , international economics , financial system , finance , macroeconomics , market economy , art , literature , history , incentive , archaeology
This paper explores the ‘financial revolving door’ hypothesis in Cameroon over the 1970–2010 period by extending the analysis to other types of capital flows such as Official Development Assistance (ODA) and Foreign Direct Investment (FDI). The paper shows that a one‐dollar increase in external debt leads to an increase in capital flight of 47–62 cents. This increase in capital flight mainly stems from changes in the private component of external debt. Capital flight is twice more sensitive to an increase in oil revenues than external debt. The paper further underscores the importance of the political and institutional environment. Even though corruption exacerbates the relationship, political and institutional stability helps to mitigate illicit capital outflows arising from an increase in external debt. With regard to the effect on ODA and FDI, the paper found it to be of little significance.