Does institutional quality modulate the effect of capital flight on economic growth in sub-Saharan Africa?

Abstract

Purpose Sub-Saharan African (SSA) region has been battling illegal outflow of capital over the years, with little success recorded so far. Without adequate attention, unemployment, infrastructure deficiencies and inefficient capital might be worse in the future. The purpose of this study is to investigate if institutional quality mitigates the effect of capital flight (CF) on economic growth. Design/methodology/approach The panel data from 26 SSA countries spanning 1998 to 2018 are used. The analysis of this study was carried out through a two-step generalized method of moments technique. The principal component index is used to group the institutional quality/governance indicators into three categories: political governance, economic governance and institutional governance. Findings The study found that CF is harmful to the economic growth of the SSA region. The study also found that, among the indicators of institutional quality, only the rule of law and control of corruption stimulate economic growth. Contrary to expectation, the finding indicates that institutional quality does mitigate the effect of CF on economic growth in the SSA region. Originality/value This study provides an insight into the relevance of institutional quality in mitigating CF in sub-Saharan African region.