This author is highly indebted to the editor and referees for useful comments.
Introduction and motivation
A key constraint to African growth and development is the shortage of financing (Boyce & Ndikumana, 2012a). The continent is facing substantial and growing financing gaps, hindering public investment and, poor social service delivery. Paradoxically, it is the source of large-scale capital flight (1) which has escalated during the last decade. According to the recent report by Boyce & Ndikumana, 33 sub-Saharan African (SSA) countries lost a total of 814 billion (constant 2010 US$) from 1970 to 2010. This far surpasses the amount of official development aid ($659 billion) and foreign direct investment ($306 billion) received by these countries. Consistent with Boyce & Ndikumana, assuming that the capital flight has earned (or could have earned) the modest interest rate measured by the short-term United States Treasury Bill rate, the corresponding accumulated stock of capital flight from the 33 countries would have stood at $ 1.06 trillion in 2010. This far exceeds the external liabilities of the group of countries of $189 billion (in 2010), giving the sub-region a paradoxical status of a "net creditor" to the rest of the world. This recent evidence has debunked the stereotyped perspective that SSA countries are severely indebted and heavily aid-dependent.
In light of the above, the present study contributes to existing literature by providing a feasible timeframe for policy harmonization in the battle against capital flight. The motivation for this scope and positioning is fourfold: current disturbing trends in African capital flight, missing link in the literature, availability of a new dataset and, recent methodological adaptations to policy harmonization. Firstly, current issues on African capital flight are earthshaking and heartbreaking (2). Accordingly, a common denominator from concerned African scholars based on a recent bulk of 'African flight focused' theoretical and empirical studies, is the need for urgent policy action (ACAS, 2012). Hence, in response, this paper is geared towards providing benchmarks for policy harmonization, with particular emphasis on the feasibility of and ideal timeframe for the harmonization process. Secondly, as far as we have searched the absence of studies that have addressed the concern of policy harmonization represents an important missing link in the literature. This paper is an attempt to bridge this scholarly gap. Thirdly, the publication of a new database in October 2012 by Boyce & Ndikumana (2012a) provides a unique opportunity of assessing the phenomenon of capital flight that has not received the much needed scholarly attention owing to the absence of relevant data. More so, while providing for the possibility of more fine-tuned empirical analysis with updated policy implications, the richness of the dataset (in appealing time series properties) provides the much needed degrees of freedom essential for robust estimations. Fourthly, the study employs a methodological innovation from recent empirics in policy harmonization. The improvement is based on theoretical underpinnings of the convergence literature, which appear relevant in tackling some of the key questions in the battle against capital flight in developing countries. Hence, employment of the methodology also substantially contributes to the empirics of capital flight.
Cognizant of the above motivations, upholding blanket policies in the battle against capital fight may not be effective unless they are contingent on fundamental characteristics and prevailing trajectories of capital flight in the African continent. Hence, policy makers are most likely to ask the following questions before benchmarking policy harmonization. Is capital flight converging within Africa? (2) If so, what is the degree and timing of the convergence process? While an answer to the first question will guide on the feasibility of harmonizing blanket policies within identified fundamental characteristics of capital flight, the answer to the second will determine an optimal timeframe for the blanket policies. Accordingly, capital flight should converge from two main reasons: absolute convergence would occur in countries that share the same fundamental characteristics of capital flight (e.g, conflicts/political instability and petroleum exports) and; conditional convergence may occur if countries within the same fundamental characteristic of capital flight differ in macroeconomic and institutional characteristics that determine capital flight. The intuition underlying the linkage between capital flight and harmonization of policies within a homogenous panel is twofold: (1) convergence in the capital flight rate will imply that, the adoption of common policies to combat capital flight is feasible and; (2) full (100%) convergence will mean, the enforcements of these policies without distinction of nationality and locality. Countries need to harmonize policies with convergence in capital flight because; countries with low rates of capital flight are catching-up their counterparts with higher rates. An indication, the capital flight problem is becoming worse in countries that formerly experienced less capital flight. This intuition is consistent with very recent methodological insights into intellectual property rights (IPRs) harmonization against software piracy (Asongu, 2013a).
The intuition motivating this paper is also in accordance with the evidence of income convergence across countries which has been investigated in the context of neoclassical growth models, originally developed by the pioneering works of Baumol (1986), Barro & Sala-i-Martin (1992, 1995) and Mankiw et al. (1992). The theoretical underpinnings of income convergence are abundant in the empirical growth literature (Solow, 1956; Swan, 1956) and have recently been applied in other areas of economic development (Asongu, 2013bc). While there is a theory and vast empirical work on per capita income convergence, there is yet not a theory on convergence in other development branches e.g financial markets, IPRs, knowledge economy (KE) ... etc. In facts, there is a growing importance of empirical convergence application to IPRs harmonization (Andres & Asongu, 2013), financial markets (Bruno et al., 2012; Narayan et al., 2011; Asongu, 2013b), optimality of currency areas (Asongu, 2013d, 2014a) and KE (Asongu, 2013e). In light of these developments, aware of the risks of 'doing analysis without theory', we argue that reporting facts even without the presence of a formal theoretical model is a useful scientific activity. Hence, we concur with recent literature (Costantini & Lupi, 2005; Narayan et al., 2011) in the assertion that, applied econometrics has other tasks than merely validating or refuting economic theories.
The literature on African capital flight can be classified into four main strands: the importance of studying the phenomenon in African countries; causes of the scourge; pull factors and destination countries and; measurement of the phenomenon and policy orientation.
The first strand is largely borrowed from Boyce & Ndikumana (2011). The problem of capital flight from African economies deserves serious attention for several reasons. Most African countries have remained in the grip of a severe external debt crisis. Consistent with Boyce & Ndikumana, in 2000, debt service amounted to 3.8% of GDP for SSA countries. In comparative terms, the sub-region: was among the highest in literacy and infant mortality rates, spent 2.4% of GDP on health and, only 55% of its citizens had access to clean drinking water (UNECA, 2007). Hence, to the extent that the proceeds of external borrowing are not used for the benefit of the African public (but rather to finance the accumulation of private external assets by the ruling elites), the moral and legal legitimacy of these debt-service obligations remains an open debate. Capital flight constitutes a diversion of scarce resources away from domestic investment and productive activities. In recent decades, African governments have achieved significantly lower investment levels than other developing countries (Ndikumana, 2000). Collier et al. (2001) estimate that if Africa were able to attract back the flight component of private wealth, domestic private capital stock would rise by about two-third. They also postulate that Africa's GDP per capita is 16% lower than it would be if the continent had been able to retain its private wealth at home. Fofack & Ndikumana (2009) are broadly consistent with this position in their documentation of large potential domestic gains from capital flight repatriation. Capital flight has pronounced regressive effects on the distribution of wealth. Individuals who engage in this scourge (for the most part) are members of the subcontinent's economic and political elite who take advantage of their privileged positions to acquire and channel funds abroad. Consistent with Boyce & Ndikumana (1998, 2011), both the acquisition and the transfer of funds often involve legally questionable practices, including the falsification of trade documents (trade misinvoicing), the embezzlement of export revenues and, kickbacks on public and private contracts. The negative effects of the resulting shortages in revenues and foreign exchange fall disproportionately on the less wealthy strata of society. The regressive effect of capital flight is further heightened when financial imbalances culminate in devaluation: a situation in which the wealthy that hold external assets are significantly insulated from the effects while the poor enjoy no such cushion. In accordance with the above, the main source of capital flight in African countries is the embezzlement public funds through corruption by officials in government.
In the second strand, we are consistent with Boyce...