Capital Flight and Political Cycles: The Effect of Elections on Capital Flight in the SADC Region

Prof. Tendai Gwatidzo
University of the Witwatersrand

 

Abstract

This study investigates the impact of election timing on capital flight. It uses panel data estimation methods and covers SADC’s 15 member states over the period 1980-2010. We find evidence of increased capital flight prior to elections, suggesting that the economic agents responsible for capital flight transfer their funds outside the country as they may fear unjust appropriation of wealth after elections. Also, some of the resources held by the economic agents, especially the elite and politicians, may be ill-gotten wealth and elections may come with changes that may result in such wealth being appropriated by the new government. To avoid this, the elite may simply transfer their wealth abroad. The study also finds that the problem of capital flight is quite serious among resourcerich countries, suggesting that Africa’s natural resource exports are probably being underinvoiced through trade misinvoicing. The evidence of increased capital flight prior to elections suggests that African countries must address the fears associated with elections that cause economic agents to transfer their money out of the country prior to elections.Download the full article