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Does financial liberalization decrease capital flight? A panel causality analysis

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  • Yalta, A. Yasemin
  • Yalta, A. Talha

Abstract

We employ a panel causality approach in order to examine whether financial liberalization affects the magnitude of capital flight, which measures unrecorded accumulation of foreign assets by the private sector. Our data from 21 emerging market economies for the period between 1980 and 2004 show no significant evidence of a causal relationship. Lagged values of capital flight, however, seem to increase its current level, indicating its self-reinforcing characteristic. Our results suggest that financial liberalization policies per se may not be helpful in reducing capital flight.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:reveco:v:22:y:2012:i:1:p:92-100
    DOI: 10.1016/j.iref.2011.09.003
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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F39 - International Economics - - International Finance - - - Other
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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