New Terrorism and Capital Flight: Pre and Post Nine Eleven analysis for Asia

The study examines the role of terrorism and military expenditures towards capital flight for two sub-regions of Asia (South Asia and Asia Pacific) using the annual data for the period 1990-2015. The empirical analysis is conducted on two sub-samples pre nine eleven (1990-2001) and post nine eleven (20022015) periods. The findings are supported by robust tests by applying quantile regression and two stage GMM. The empirical estimations highlight that terrorism attacks induce to increase capital flight from Asian countries in full panel, pre nine eleven and post nine eleven periods. Military expenditures illustrates important role to modulate the adverse effect of terrorist attacks on capital flight. In summary, the study recommends multiple policy implications to control the increasing pace of capital flight from Asian countries. The empirical findings suggest the applicability of modernization theory to explain the capital flow and growth nexus.