Elections and Capital Flight: Evidence from Africa

The developing world currently loses more money via capital flight than it receives through foreign aid and foreign direct investment combined. This "leakage" of capital produces many pernicious consequences for developing economies. What factors influence capital flight? I argue that it follows an electoral cycle. Greater uncertainty prior to elections incentivizes those in the business sector to take their money elsewhere. Using data from thirty-six African countries from 1971 to 2009, I find support for my argument: capital flight is higher during election years than it is otherwise.