Macroeconomic and Institutional Determinants of Capital Flight in Cameroon, Gabon and the Republic of Congo: A Comparative Analysis

Abstract

Cameroon, Congo and Gabon are characterized by an impressive flight of capital. Meanwhile, the macroeconomic variables of these countries are unstable and there is a degradation of governance indicators. This study examines the relationship between capital flight and the evolution of macroeconomic and institutional indicators in these three countries. The objective of the study is to identify the macroeconomic and institutional determinants of capital flight for the period 1970-2015 in Cameroon, Gabon and the Republic of Congo. Time series technique is used for the analysis. Appropriate tests are performed to verify the robustness of the results. The models are estimated through Autoregressive Distributed Lag approach. For each of the three countries considered in this paper, the results reveal a stable long-run relationship between capital flight and macroeconomic and institutional variables. In addition, some macroeconomic and institutional variables positively and significantly influence capital flight in each of the three countries. Policy implications are country-specific. For Cameroon, entrepreneurs should reinvest the profits from other growth sectors of the economy to ensure its diversification. In addition, natural resource rent management should be more transparent to limit capital flight. Anti-corruption structures should have more extensive powers to pursue the perpetrators of corruption before the competent courts. The application of the provisions of the constitution relating to the declaration of the property of the leaders occupying high positions should come into force to limit any hint of embezzlement of public funds. Concerning the Republic of Congo, the debt must be deeply restructured to make it sustainable. Leaders of anti-corruption structures should have a degree of autonomy in carrying out their mandate. Deadlines for dealing with corruption cases should be defined with a view to speeding up the procedures for sanctions. For Gabon, the main macroeconomic recommendation concerns the restructuring of the capital of multinational companies operating in Gabon. The state and private operators should take stakes in these multinationals to benefit from part of the dividends that can be reinvested locally and limit capital flight. In terms of political governance, efforts must be made to ensure that the country has strong institutions for transparent elections.