What happens to domestic investment in a context of massive capital flight? I investigate this research question using annual panel data for the 15 African countries in the Franc Zone (FZ) in the period 1970 to 2005. The econometric analysis shows that capital flight affects negatively and significantly domestic investment, suggesting thus that capital flight lowers domestic investment in the FZ. The results indicate also that the domestic investment influence of capital flight operates through the private investment channel more than the public investment channel, and is caused by capital outflows from CEMAC more than those from WAEMU. The key implication of these results is that capital flight repatriation helps increase the level of domestic investment. This paper contributes therefore to a better understanding of the role of capital flight in explaining fluctuations in domestic investment and thereby the performance in terms of economic growth in the FZ. JEL Classification: F20; E2
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