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Robbing the Riches: Capital Flight, Institutions and Debt

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  • Valerie Cerra
  • Meenakshi Rishi
  • Sweta Saxena

Abstract

Capital flight undermines economic growth and the effectiveness of debt relief and foreign aid, and sometimes drains more resources from poor countries than does debt service. In an analysis of a large panel of developing and emerging market countries using annual data for 1970-2001, we show that both institutions and macro policies robustly affect capital flight. Our study also supports the existence of a revolving door relationship between debt and capital flight. More notably we find countries with weak institutions have a greater propensity to accumulate debt because weak institutions spur capital flight, which, in turn, creates a financing need.

Suggested Citation

  • Valerie Cerra & Meenakshi Rishi & Sweta Saxena, 2008. "Robbing the Riches: Capital Flight, Institutions and Debt," Journal of Development Studies, Taylor & Francis Journals, vol. 44(8), pages 1190-1213.
  • Handle: RePEc:taf:jdevst:v:44:y:2008:i:8:p:1190-1213
    DOI: 10.1080/00220380802242453
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    Cited by:

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    5. Pietro Alessandrini & Andrea Presbitero, 2012. "Low-Income Countries and an SDR-based International Monetary System," Open Economies Review, Springer, vol. 23(1), pages 129-150, February.
    6. Andrea F Presbitero, 2012. "Total Public Debt and Growth in Developing Countries," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 24(4), pages 606-626, September.
    7. Pietro Alessandrini & Andrea Filippo Presbitero, 2011. "Low-Income Countries Vulnerabilities and the Need for an SDR-Based International Monetary System," Mo.Fi.R. Working Papers 55, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    8. Siew-Peng Lee & Yan-Ling Ng, 2015. "Public Debt and Economic Growth in Malaysia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(1), pages 119-126, January.
    9. Boukhatem, Jamel & Kaabi, Malèk, 2015. "Dette publique, qualité institutionnelle et croissance économique dans les pays de la région MENA : analyse par la méthode des moments généralisés [Public debt, institutional quality and economic g," MPRA Paper 65756, University Library of Munich, Germany, revised 23 Jul 2015.
    10. Letete Emmanuel & Sarr Mare, 2017. "Working Paper 275 - Illicit Financial Flows and Political Institutions in Kenya," Working Paper Series 2392, African Development Bank.
    11. R.G. Akhmadeev & O.A. Bykanova & N.V. Philippova & I.V. Vashchekina & T.B. Turishcheva, 2018. "Macroeconomic Indicators and their Impact on the Foreign Debt Burden: The Case of BRICS Countries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 68-82.
    12. Cheung, Yin-Wong & Steinkamp, Sven & Westermann, Frank, 2020. "Capital flight to Germany: Two alternative measures," Journal of International Money and Finance, Elsevier, vol. 102(C).
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    14. Ashis Kumar Pradhan & Gourishankar S. Hiremath, 2017. "The Capital Flight From India: A Case Of Missing Woods For Trees?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 365-383, January.
    15. 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.
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