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External Debt and Capital Flight in the Indian Economy

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  • Niranjan Chipalkatti
  • Meenakshi Rishi
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    Abstract

    This paper estimates Indian capital flight at US $88 billion (in 1997 dollars) over the 1971-97 period, a sum that is roughly 20% of the US $448 billion real external debt disbursed to the country over the same time period. There is also evidence of a strong year-to-year correlation between debt inflows and flight-capital outflows. The paper explores the nature of this association between capital flight and external debt in the Indian economy. An analysis by Boyce (1992, World Development, 20, pp. 335-349) for the Philippines revealed the presence of contemporaneous bi-directional causality, in other words, a financial revolving door relationship between external debt and capital flight in that economy. The research question addressed by this paper is whether such a financial revolving door relationship exists in India, given its higher level of external indebtedness and lower debt-to-GNP ratio as compared with the Philippines. Utilizing a simultaneous equation model to examine the association between capital flight and external debt in the Indian economy, the paper confirms the existence of a financial revolving door relationship between the two endogenous variables.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Oxford Development Studies.

    Volume (Year): 29 (2001)
    Issue (Month): 1 ()
    Pages: 31-44

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    Handle: RePEc:taf:oxdevs:v:29:y:2001:i:1:p:31-44

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    Cited by:
    1. Sweta Chaman Saxena & Meenakshi Rishi & Valerie Cerra, 2005. "Robbing the Riches," IMF Working Papers 05/199, International Monetary Fund.
    2. Demir, Firat, 2004. "A Failure Story: Politics and Financial Liberalization in Turkey, Revisiting the Revolving Door Hypothesis," World Development, Elsevier, vol. 32(5), pages 851-869, May.
    3. Beja Jr., Edsel L., 2007. "Brothers in distress: Revolving capital flows of Indonesia, Malaysia, and Thailand," Journal of Asian Economics, Elsevier, vol. 18(6), pages 904-914, December.
    4. Madiha Bashir & Attiya Yasmin Javid, 2014. "Financial Flows, External Capital Structure, Institutions and Economic Growth in Asian Developing Economies," PIDE-Working Papers 2014:108, Pakistan Institute of Development Economics.
    5. Joaquin, Vespignani L, 2008. "Capital flight, saving rate and the golden rule level of capital: policy recommendations for Latin America countries," MPRA Paper 43824, University Library of Munich, Germany, revised Dec 2008.
    6. Beja, Edsel Jr., 2007. "Capital Flight and Economic Performance," MPRA Paper 4885, University Library of Munich, Germany, revised 12 Sep 2007.

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