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Effect of Capital Flight on Investment: Evidence from Emerging Markets

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  • A. Yasemin Yalta

Abstract

Much of the discussion on international capital movements is directed toward studying the effects of foreign capital flows, whereas the implications of resident capital outflows (capital flight) from developing countries remain largely unanalyzed. Using a dynamic panel methodology for twenty-two emerging market economies between 1975 and 2000, this paper investigates the effect of capital flight on investment and how this effect changes with financial liberalization policies. The empirical findings indicate that capital flight reduces private investment dramatically but does not have any effect on public investment. However, no statistically significant impact of financial liberalization on the marginal effect of capital flight on investment is found.

Suggested Citation

  • A. Yasemin Yalta, 2010. "Effect of Capital Flight on Investment: Evidence from Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 40-54, November.
    • Handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:40-54
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    Citations

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    Cited by:

    1. Yang, Haizhen & Shi, Fangfang & Wang, Jie & Jing, Zhongbo, 2019. "Investigating the relationship between financial liberalization and capital flow waves: A panel data analysis," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 120-136.
    2. Lionel Effiom & Alfa Charles Achu & Samuel Etim Edet, 2020. "Capital Flight and Domestic Investment in Nigeria: Evidence From ARDL Methodology," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 348-360, January.
    3. Yalta, A. Yasemin & Yalta, A. Talha, 2012. "Does financial liberalization decrease capital flight? A panel causality analysis," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 92-100.
    4. repec:dgr:rugsom:14031-eef is not listed on IDEAS
    5. M. Berument & Zulal Denaux & Furkan Emirmahmutoglu, 2015. "The effects of capital inflows on Turkish macroeconomic performance," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(4), pages 813-824, November.
    6. Si, Deng-Kui & Li, Xiao-Lin & Huang, Shoujun, 2021. "Financial deregulation and operational risks of energy enterprise: The shock of liberalization of bank lending rate in China," Energy Economics, Elsevier, vol. 93(C).
    7. Dachraoui, Hajer & Smida, Mounir, 2014. "La Mesure de la Fuite des Capitaux et son Impact sur l’Investissement Domestique : Cas des Pays Émergents [Measurement of capital flight and its impact on domestic investment in emerging countries]," MPRA Paper 62740, University Library of Munich, Germany.
    8. André Moulemvo, 2016. "Impact of Capital Flight on Public Social Expenditure in Congo†Brazzaville," African Development Review, African Development Bank, vol. 28(S1), pages 113-123, April.
    9. Heydari, Hassan & Jariani, Farzaneh, 2020. "Analyzing Effective Factors of Capital Outflow from the Middle East and North African Countries (MENA)," MPRA Paper 104547, University Library of Munich, Germany.
    10. Jean Francky Landry Ngono, 2022. "Capital flight, quality of institutions and domestic investment in Africa," Economics Bulletin, AccessEcon, vol. 42(1), pages 193-202.
    11. Brada, Josef C. & Kutan, Ali M. & Vukšić, Goran, 2013. "Capital Flight in the Presence of Domestic Borrowing: Evidence from Eastern European Economies," World Development, Elsevier, vol. 51(C), pages 32-46.
    12. Hermes, Niels & Lensink, Robert, 2014. "Financial liberalization and capital flight," Research Report 14031-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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