Relationship Between Foreign Direct Investments and Capital Flight in Kenya: 1998-2018

Mercy Wairimu Mwangi(1*), Amos Njuguna(2), George Achoki(3),

(1) United States International University
(2) United States International University
(3) United States International University
(*) Corresponding Author


The study established the relationship between Foreign Direct investments and Capital Flight in Kenya over the period 1998 to 2018. Quarterly time series data for calculation of capital flight and Gross Domestic Product growth rate, inflation and Foreign Direct investments were collected from the Central Bank of Kenya and Kenya National Bureau of Statistics. Two Autoregressive Distributed-lagged model models were fitted. Regression coefficients for FDI were 0.44 and -0.040 in the short run and -0.501 in the long run. The p values were 0.008 and 0.015 and 0.654 respectively. The results indicated that a 1 % increase in current quarters FDI would lead to a 0.44% increase in capital flight and a 1% increase in previous quarters FDI would lead to a decrease of 0.040% in capital flight. Regression results showed a coefficient of 0.006 and - 0.004 for Gross Domestic Product growth rate in the short run, and 0.038 in the long run. The p values were 0.422, and 0.638 and 0.749 respectively meaning that Gross Domestic Product growth rate and the capital flight had no significant relationship. Regression results showed a coefficient of -0.001 and -0.005 for inflation in the short run and -0.088 for inflation for the long run. The p values were 0.844 and 0.363 and 0.253 respectively. This indicated that inflation and the capital flight had an insignificant relationship. The study recommends that government adopts strategic management on FDI inflow transactions to avoid possible leakages of the same money going out as capital flight.


capital flight; GDP growth rate; inflation; foreign direct investments; net inflows

Full Text:



Ahmad, B. and Sahto, Q.D. (2016). Determinants of capital flight in Pakistan. Journal of Business Studies, 11(2), 55-64.

Alam, M. I. and Quazi, R. M. (2003). Determinants of capital flight: An econometric case study of Bangladesh. International Review of Applied Economics, 17(1), 085-103.

Al-Basheer, A. B., Al-Fawwaz, T. M. and Alawneh, A. M. (2016). Economic Determinants of Capital Flight in Jordan: An Empirical Study. European Scientific Journal, 12 (4), 1857–7881.

Alesina, A. and Tabellini, G. (1989). External Debt, Capital Flight, and Political Risk. Journal of International Economics, 27(3/4), 199-220.

Barasa, T. (2018). Illicit Financial Flows in Kenya: Mapping of the Literature and Synthesis of the Evidence.

Boyce, J. K. and Ndikumana, L. (2001). Is Africa a net creditor? New estimates of capital flight from severely indebted sub-Saharan African countries, 1970-1996. Journal of Development Studies, 38(2), 27-56.

Boyce, J. K. and Ndikumana, L. (2012). Capital Flight from Sub-Saharan African Countries: Updates 1970-2010. PERI Research Report. Amherst, MA. Political Economy Research Institute.

Cardiff, P. (2017, July 17). Which economic growth model/theory best explains capital flight? Retrieved from

Cheung, Y.W., Steinkamp, S. and Westermann, F. (2016). China’s Capital Flight: Pre-and Post-Crisis Experiences Journal of International Money and Finance, 66, 88-112.

Collier, P., Hoeffler, A. and Patillo, C. (2001). Flight Capital as a Portfolio Choice. World Bank Economic Review, 15 (1), 55-80.

Collier, P., Hoeffler, A. and Patillo, C. (2004). Africa’s Exodus: Capital Flight and the Brain Drain as Portfolio Decisions. Journal of African Economies, 13, 15-54.

Epstein, G.A. (2005). Capital Flight and Capital Controls in Developing Countries. Northampton: Edward Elgar.

Fiol, C. M., and O’Connor, E.J (2003). Waking Up! Mindfulness in the Face of Bandwagons, Academy of Management Review, 28, 54–70.

Fischer, S. (1993). The Role of Macroeconomic Factors in Growth. Journal of Monetary Economics, 32, 485-512.

Forson, R., Obeng, K.C, and Brafu-Insaidoo, W. (2017), Determinants of Capital Flight in Ghana (2017). Journal of Business and Enterprise Development; Vol. 7, PP 151-180.

Gachoki, C. and Nyang ’oro, O. ( 2016). Impact of Capital Flight on Private Investment in Kenya. International Journal of Economics, 1 (2),1 – 15.

Gankou, J. M., Bendoma, M. and Sow, M. N. (2016). The Institutional Environment and the Link between Capital Flows and Capital Flight in Cameroon. African Development Review, 28 (S1), 65–87.

García, M. A., and Ferruz, L. (2015). Pension Funds: Financial Econometrics on the Herding Phenomenon in Spain and the United Kingdom. En C.-F. Lee, & J. C. Lee, Handbook of Financial Econometrics and Statistics (págs. 1801-1828). New York: Springer-Verlag.

Gbadebo, A. D. and Nuhu, M. (2014). The relationship between Foreign Direct Investment and Capital Flight in Nigeria. International Journal of Advanced Research in Statistics, Management and Finance, 2 (1).

Geda, A. and Yimer, A. (2016). Capital Flight and its Determinants: The Case of Ethiopia. African Development Review, 28 (S1), 39–49.

Greene, William H. (2012, Econometric Analysis, Prentice-Hall. 7th ed.

Gusarova, V. (2009). The impact of Capital flight on economic growth. Unpublished Master’s Thesis of the KYIV School of `Economics.

Hasnul, A. G. and Masih, M. (2016). Role of instability in affecting capital flight magnitude: An ARDL bounds testing approach. Paper No. 72086, M P R A, Paper No. 72086.

Henry, A. W. (2013). Analysis of the Effects of Capital Flight on Economic Growth: Evidence from Nigerian Economy (1980–2011). Analysis, 5(17).

Hermes, N., Lensink, R. and Murinde, V. (2002). Capital flight, policy uncertainty, and the instability of the international financial system. In A. Mullineux and V. Murinde, eds., Handbook of International Banking. Cheltenham: Edward Elgar (forthcoming) IMF.

Hope, K.R, (2014). Kenya's corruption problem: causes and consequences, Commonwealth & Comparative Politics, 52:4, 493-512.

Kant, C. (1996). Foreign Direct Investment and Capital Flight. New Jersey: International Finance Section Department of Economics of Princeton University.

Kar, D and Spanjers, J. (2014). Illicit Financial Flows from Developing Countries: 2003-2012. Global Financial Integrity. Retrieved from www. gfintegrity. Org.

Kar, D. and Spanjers, J. (2015). Illicit Financial Flows from Developing Countries: 2004-2013. Global Financial Integrity. Retrieved from www. integrity. Org.

Kenya Economic Report. (2017). Sustaining Kenya's Economic Development by Deepening and Expanding Economic Integration in the Region, Kenya Institute for Public Policy Research and Analysis (KIPPA).

Khan, M. S. and Haque, N. U. (1985). Foreign Borrowing and Capital Flight: A Formal Analysis. International Monetary Fund Staff Papers, 32, 606–28.

Khan and Ajayi S.I (2000). External Debt and Capital Flight in sub-Saharan Africa. IMF Institute. International Monetary Fund. Washington D.C.

Kimenyi, S.M., Mwega, F.M and Ndung’u, S.N. (2016) African Lions: Kenya country case study: United Nations University-World Institute for Development Economics Research (UNU-WIDER), the University of Cape Town’s Development Policy Research Unit (DPRU).

Kindleberger, C. P. (1987). A Historical Perspective. Donald R. Lessard, and John Williamson (eds.), Capital Flight and Third World Debt, Washington DC, Institute for International Economics, 7-26.

Kinuthia, B.K., Murshed, S.M. (2014). FDI determinants: Kenya and Malaysia compared, Journal of Policy Modelling, 37, 388 – 400.

Kipyegon, L. (2004). Determinants of capital flight from Kenya. Unpublished masters thesis. Kenyatta University.

Letete, E. M. (2015). Essays on Institutions and Economic Development in Kenya: Degree of Doctor of Philosophy Thesis. University of Cape Town.

Letete, E. and Sarr, M. (2017). Illicit Financial Flows and Political Institutions in Kenya, Working Paper Series N° 275, African Development Bank, Abidjan, Côte d’Ivoire.

Levis, M., Muradoglu, G. and Vasileva, K. (2011). Herding in FDI Outflows retrieved From

Liew, S.L. (2016). Review on Determinants of Capital Flight Review on Determinants of Capital Flight. MPRA. Retrieved from

Lucas, R. E. (1990). Why Doesn’t Capital Flow from Rich to Poor Countries? American Economic Review, 80 (2), 92-96.

Maski, G., & Wahyudi, S. T. (2012). Study on the Capital Flight and Its Impact on Economic Growth: A Case Study in Indonesia. Journal of Basic and Applied Scientific Research, 2(7), 7168–7174.

Moeva, Z. S.A. (2007). Determinants of Capital Flight in Kenya (1987-2007). Unpublished Master thesis, University of Nairobi.

Moulemvo, A. (2016). Impact of Capital Flight on Public Social Expenditure in Congo-Brazzaville. African Development Review, 28 (S1),113–123.

Mpenya, A.H.T., Metseyem, C. and Epo, B.N. (2016). Natural resources and capital flight in Cameroon. African Development Review 28(S1):88–99.

Muchai, D. N., and Muchai, J. (2016). Fiscal Policy and Capital Flight in Keny. African Development Review. 28( S1), 8–21.

Mudida, R. (2011). Empirical Aspects Of Capital Flight in Kenya, 1970-2009. Nairobi: Navarra Center for International Development Working Paper Nº 08/2011.

Ndikumana, L.and Boyce, J. K. (2003). Public debts and private assets: Explaining capital flight from Sub-Saharan African countries. World Development. 31 (1): 107-130.

Ndikumana, L. and Boyce, J. K. (2018). Capital Flight from Africa Updated Methodology and New Estimates. Research Report, Political Economy Research Institute, University of Massachusetts at Amherst.

Ndikumana, L. and Sarr, M. (2016). Capital flight and Foreign direct investment in Africa: An Investigation of the role of natural resource endowment. WIDER Working Paper 2016/58.

Ng’eno, N.K. (2000). Capital Flight in Kenya. in: Ajayi, I. and Khan, M. (eds). External Debt and Capital Flight in Sub-Saharan Africa. Washington, D.C.: The IMF Institute., 300- 321.

Nkurunziza, D. J. (2012). Illicit Financial Flows: A Constraint on Poverty Reduction in Africa. Association of Concerned Africa. Scholars Bulletin, 87, 15-21.

Nkurunziza, J. D. (2015). Capital Flight and Poverty Reduction in Africa, in I.

Ajayi and L. Ndikumana (eds.), Capital Flight from Africa: Causes, Effects and Policy Issues (pp. 81–110), Oxford University Press, Oxford.

Olawale, O. O. and Ifedayo, M. O. (2015). Impacts of Capital Flight on Economic Growth in Nigeria. International Journal for Innovation Education and Research.3 (8).

Pradhan, A.K and Gourishankar, S.H. (2017). The Capital Flight from India: A Case of Missing Woods for Trees. The Singapore Economic Review, 62, 2.

Puah, C.H., Liew, S.L. and Abu Mansor, S. (2016). Macroeconomic Determinants of Capital Flight: An Empirical Study in Malaysia. International Business Management, 10 (13), 2526-2534.

Salandy, M. and Henry, l. (2018). Determinants of Capital Flight from Beautiful Places: The Case Of Small Open Economy Of Trinidad And Tobago, The Journal of Developing Areas, 52(4)

Scharfstein, David S, and Jeremy C Stein. 1990. Herd Behavior and Investment.American Economic Review 80, 465-479.

Sharpe, W., Alexander, G., and Bailey, J. (2003). Investments. New Delhi: Prentice-Hall of India.

Tashakkori, A. and Teddlie. C. (1998). Mixed methodology: Combining qualitative and quantitative approaches. Applied Social Research Methods Series, vol. 46. Thousand Oaks, CA: Sage.

Tobin, J. (1969). A General Equilibrium Approach to Monetary Theory. Journal of Money, Credit and Banking, 1, 15-29.

Tuominen, N. (2017). A Basic Theory of Rational Herd Behaviour and Informational Cascades Does it apply to Financial Markets? Thesis Aalto University’s School of Business.

Uddin, M. J., Yousuf, M. and Islam, R. (2017). Capital flight affecting determinants in Bangladesh: An Econometric Estimation. International Journal of Economics, Commerce and Management 8.

Waris, A. and Fröberg, K. F. (2011). Bringing the billions back How Africa and Europe can end illicit capital flight. Stockholm: Forum Syd förlag.

Wiliams, J. (1938; 1997). The Theory of Investment Values. New York: Fraser Publishing.

Wujung, V. A., and Mbella, E. (2016). Capital Flight and Economic Development: The Experience of Cameroon. Economics, 5(5), 64–72.


Article Metrics

Abstract view : 431 times
PDF - 299 times


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License

Integrated Journal of Business and Economics is licensed under a Creative Commons Attribution 4.0 International License.