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Unrecorded capital flows and accumulation of foreign assets: the case of Croatia

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  • Goran Vuksic

    (Institute of Public Finance, Zagreb)

Abstract

This paper evaluates the magnitude of unrecorded capital flows and the resulting unrecorded accumulation of foreign assets for Croatia, over the period between 2000 and 2007. The problem of unrecorded capital outflows, often labeled as capital flight, has gained significance in the present global financial and economic crises, because of increasing capital scarcity in many emerging markets and transition economies including Croatia. The findings reveal relatively large amounts of unrecorded foreign asset accumulation over the observed period. A large portion of this accumulation relates to cumulative amounts of net errors and omissions term, which is interpreted as unrecorded capital flow. There are reasons to believe that this net errors and omissions item in Croatia possibly partly represents the unrecorded accumulation of foreign cash from foreign tourist spending, and/or partly results from overstated tourism income in the official statistics. However, even after excluding this item from the calculation of capital flight, the remaining unrecorded accumulation of foreign assets over the period is still substantial. Consequently, if these unrecorded flows are taken into account, Croatia’s net international investment position is improved.

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Bibliographic Info

Article provided by Institute of Public Finance in its journal Financial Theory and Practice.

Volume (Year): 34 (2010)
Issue (Month): 1 ()
Pages: 1-23

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Handle: RePEc:ipf:finteo:v:34:y:2010:i:1:p:1-23

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Related research

Keywords: capital flows; capital flight; euroization; Croatia;

References

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  1. Helmut Stix, 2011. "Euroization: what factors drive its persistence? Household data evidence for Croatia, Slovenia and Slovakia," Applied Economics, Taylor and Francis Journals, vol. 43(21), pages 2689-2704.
  2. Eggerstedt, Harald & Brideau Hall, Rebecca & van Wijnbergen, Sweder, 1993. "Measuring capital flight : a case study of Mexico," Policy Research Working Paper Series 1121, The World Bank.
  3. Björn Fischer & Petra Köhler & Franz Seitz, 2004. "The demand for euro area currencies," Working Paper Series 330, European Central Bank.
  4. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 1999. "The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," CEPR Discussion Papers 2231, C.E.P.R. Discussion Papers.
  5. Chang, P H Kevin & Claessens, Stijn & Cumby, Robert E, 1997. "Conceptual and Methodological Issues in the Measurement of Capital Flight," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 101-19, April.
  6. Hermes, Niels & Lensink, Robert & Murinde, Victor, 2002. "Flight Capital and its Reversal for Development Financing," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  7. Claessens, Stijn & Naude, David, 1993. "Recent estimates of capital flight," Policy Research Working Paper Series 1186, The World Bank.
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