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Robbing the Riches; Capital Flight, Institutions, and Instability

  • Sweta Chaman Saxena
  • Meenakshi Rishi
  • Valerie Cerra

Capital flight may undermine economic growth and the effectiveness of debt relief and foreign aid. This paper is the first attempt to test whether unsound macroeconomic policies or weak institutions lead to capital flight, using panel data for a large set of developing, emerging market and transition countries. In addition, the paper tests the revolving door hypothesis that links debt accumulation and capital flight, and analyzes the contribution of institutions to several channels in this relationship.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/199.

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Length: 39
Date of creation: 01 Oct 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/199
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  1. Léonce Ndikumana, 2002. "Public Debts and Private Assets:Explaining Capital Flight from Sub-Saharan African Countries," Working Papers wp32, Political Economy Research Institute, University of Massachusetts at Amherst.
  2. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  3. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
  4. Hermes, N. & Lensink, R., 2000. "Capital flight and the uncertainty of government policies," Research Report 00C30, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  5. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  6. Michael P. Dooley & Kenneth M. Kletzer, 1994. "Capital Flight, External Debt and Domestic Policies," NBER Working Papers 4793, National Bureau of Economic Research, Inc.
  7. Lensink, Robert & Hermes, Niels & Murinde, Victor, 1998. "The Effect of Financial Liberalization on Capital Flight in African Economies," World Development, Elsevier, vol. 26(7), pages 1349-1368, July.
  8. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
  9. 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.
  10. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
  11. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  12. Niranjan Chipalkatti & Meenakshi Rishi, 2001. "External Debt and Capital Flight in the Indian Economy," Oxford Development Studies, Taylor & Francis Journals, vol. 29(1), pages 31-44.
  13. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
  14. Fry, Maxwell J., 1993. "Foreign debt accumulation: financial and fiscal effects and monetary policy reactions in developing countries," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 347-367, August.
  15. Eaton, Jonathan, 1987. "Public Debt Guarantees and Private Capital Flight," World Bank Economic Review, World Bank Group, vol. 1(3), pages 377-95, May.
  16. Boyce, James K., 1992. "The revolving door? External debt and capital flight: A Philippine case study," World Development, Elsevier, vol. 20(3), pages 335-349, March.
  17. Bhattacharya, Rina, 1999. "Capital flight under uncertainty about domestic taxation and trade liberalization," Journal of Development Economics, Elsevier, vol. 59(2), pages 365-387, August.
  18. Hermes, Niels & Lensink, Robert & Murinde, Victor, 2002. "Flight Capital and its Reversal for Development Financing," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  19. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  20. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
  21. Lisa M. Schineller, 1997. "A nonlinear econometric analysis of capital flight," International Finance Discussion Papers 594, Board of Governors of the Federal Reserve System (U.S.).
  22. Author-Name: Jeffrey D. Sachs & John W. McArthur & Guido Schmidt-Traub & Margaret Kruk & Chandrika Bahadur & Michael Faye & Gordon McCord, 2004. "Ending Africa's Poverty Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 117-240.
  23. Douglass C. North & Robert Paul Thomas, 1970. "An Economic Theory of the Growth of the Western World," Economic History Review, Economic History Society, vol. 23(1), pages 1-17, 04.
  24. Robert E. Cumby & Richard M. Levich, 1987. "On the Definition and Magnitude of Recent Capital Flight," NBER Working Papers 2275, National Bureau of Economic Research, Inc.
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