Capital flight, quality of institutions and domestic investment in Africa

The objective of this study is to assess the role played by the quality of institutions in the effect of capital flight on domestic investment in Africa. In pursuit of this objective, data from the World Bank (2020), Boyce and Ndikumana (2018) and the Financial Access Survey (FAS, 2019) have led to the establishment of a study period that extends from 2004 to 2014. The econometric analysis required the generalized method of moments (GMM). It appears that capital flight significantly reduces domestic investment in Africa. But that improving the quality of institutions on the continent would mitigate this harmful effect of capital flight. Especially when it comes to controlling corruption, law and order, investment profile, internal conflict and government stability. Also, the decline in national savings that this capital flight can cause, the ensuing drop in deposits and the decline in the money supply significantly reduce domestic investment spending on the continent.