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1. Introduction
Capital flight[1] has been the subject of considerable theoretical and empirical research since the late 1980s and in the 1990s (see among the pioneers, Cumby and Levich, 1987; Ajayi, 1992, 1995; Ojo, 1992; Boyce, 1992). According to Ajayi (1992), Ndikumana and Boyce (2003, 2011a, 2011b) and Ndiaye (2014), both private actors and public authorities are responsible for capital flight. Because of macroeconomic uncertainty, political instability, less developed financial system and higher rate of return differentials abroad, private actors prefer to hold their savings abroad, while because of corruption, public authorities embezzle funds and transfer them to overseas banks. Burundi, a small landlocked and resource-scarce economy recovering from a civil war, has not escaped the capital flight problem. For the period 1985-2013, Burundi is reported to have lost resources amounting to $3.7bn[2] (constant 2013 prices) in form of capital flight, of which $799m (21.6 per cent) went through balance of payment (BoP) leakages and $2,894m (78.4 per cent) through trade misinvoicing (import and export misinvoicing). In spite of being a small poor country, non-resource-rich, the phenomenon of capital flight seems to be sizeable. Compared to most East African Community countries, capital flight from Burundi is higher. For the period 1985-2010, capital flight from Burundi was $4.1bn, $492.6m from Rwanda, $6.2bn from Uganda, while Kenya and Tanzania experienced capital flight reversal of $109.8m and $1.5bn, respectively[3]. While in absolute terms it might seem that the capital flight problem is not alarming, in relative terms, the magnitude of capital flight from Burundi is large. Over the period 1985-2013, compared to the size of the economy, total capital flight represents on average 10.2 per cent of gross domestic product (GDP), and even reached 19 per cent in the second half of the decade 1990s and in the first half of the 2000s (Table III).
Capital flight from Burundi can be considered as a paradox given the poverty prevalence[4] and the low level of human development[5]. While majority of Burundians especially in rural areas, are deprived of the essential services such as access to health care, education, clean water and proper sanitation large sums of money flee the country in form of capital flight instead of being invested domestically and help the citizens meet the very basic needs....