Capital Flight and Monetary Policy in African Countries

According to conventional economic theory, high interest rates are expected to stem capital flight by raising the relative rate of return to investment in domestic assets. However, African countries have experienced high capital flight over the past decades despite high interest rates and improved macroeconomic stability, implying that capital flight is not driven by arbitrage on the basis of the risk-adjusted rate of return to investment. Drawing on panel data covering 39 countries over 1970