Equation (12) implies that  and  have a negative effect on the steady-state level of capital stock

* *  _k_  _k_ (  ;0  0 ).  That is, capital accumulation will be lower as a higher fraction of income is   smuggled abroad and as a larger fraction of effective labor is spent on capital smuggling.

The model has clear implications, particularly in terms of expected gains associated with curbing capital flight and repatriating capital flight. The increase in domestic saving and tax revenue following repatriation will permit higher rates of physical capital accumulation, which will generate higher economic growth, especially to the extent that revenues from capital flight repatriation are primarily allocated to productive investments. In addition, according to the model, a decline in capital smuggling will result in higher productivity of human capital, which in turn will lead to higher economic growth. In the following section, we use data on the 40 Sub-Saharan countries to illustrate the potential gains from curbing capital flight and enforcing capital flight repatriation. The simulations are informed by the results from econometric estimation of the impact of capital flight on domestic investment as well as the impact of saving on investment.

# **IV. Data Analysis and Simulations of Potential Gains from Capital Flight Repatriation**

The analysis in this section is based on data for 40 sub-Saharan African countries with updated series of capital flight produced in Ndikumana and Boyce (2008). The analysis is done in three steps: first, we relate the magnitude of capital flight to other forms of external capital inflows to shed light on the relative advantages of curbing capital flight and repatriation of capital flight on the one hand and relying on the conventional sources of external resources, namely FDI, official development aid including debt relief on the other hand. Second, we simulate the expected gains from capital flight repatriation using econometric results on the linkages between capital flight and domestic investment on the one hand, and domestic investment and saving on the other hand.

The idea builds on historical relationships between domestic investment and saving to draw inferences on the gains that would accrue from increases in saving arising from capital flight repatriation. This methodology has the advantage that the simulations take into account the structural relationships between the relevant variable, namely domestic investment, saving, and capital flight.

The third exercise is to simulate potential gains from capital flight repatriation in terms growth through human capital formation. We focus on the impact of capital repatriation on public expenditure on education, that is, we show by how much these expenditures can be increased by taking advantage of capital flight repatriation.

As discussed in the previous section, despite the recent increase in private capital flows to Sub-Saharan Africa, the sub-region still receives a disproportionately small share of the total flows to developing countries. Thus marginalization of the sub-region in the trade arena is compounded by the extremely skewed distribution of flows, making it harder for the sub-region to accelerate its growth rate and achieve sustainable development.

**11**