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This chapter addresses issues of pervasive poverty and shortage of foreign exchange as evidence of rising capital flight and contributes to literature and policy debate on the growth and poverty reduction impact of capital flight from Africa in general and from Ethiopia in particular. According to official statistics, Ethiopia continued to register double-digit economic growth. The poverty index therefore implies that to eliminate poverty the government of Ethiopia will need to invest 7.8 per cent of the poverty line per capita. Several channels have been identified in literature through which capital flight affects economic growth. Capital flight leads to the erosion of the tax base, resulting in a fall in government revenue that consequently induces a decline in public investments and economic growth. Capital flight may also have a negative effect on the government’s tax revenue as it erodes the country’s tax base. |
