IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2005-199.html
   My bibliography  Save this paper

Robbing the Riches: Capital Flight, Institutions, and Instability

Author

Listed:
  • Ms. Sweta Chaman Saxena
  • Meenakshi Rishi
  • Ms. Valerie Cerra

Abstract

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.

Suggested Citation

  • Ms. Sweta Chaman Saxena & Meenakshi Rishi & Ms. Valerie Cerra, 2005. "Robbing the Riches: Capital Flight, Institutions, and Instability," IMF Working Papers 2005/199, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/199
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18555
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hermes, Niels & Lensink, Robert, 2001. "Capital flight and the uncertainty of government policies," Economics Letters, Elsevier, vol. 71(3), pages 377-381, June.
    2. Eaton, Jonathan, 1987. "Public Debt Guarantees and Private Capital Flight," The World Bank Economic Review, World Bank, vol. 1(3), pages 377-395, May.
    3. Michael P. Dooley & Kenneth M. Kletzer, 1994. "Capital flight, external debt, and domestic policies," Economic Review, Federal Reserve Bank of San Francisco, pages 29-37.
    4. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    5. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
    6. Michael P. Dooley, 1988. "Capital Flight: A Response to Differences in Financial Risks," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 422-436, September.
    7. 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.
    8. 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.
    9. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    10. 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.
    11. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    12. Ndikumana, Leonce & Boyce, James K., 2003. "Public Debts and Private Assets: Explaining Capital Flight from Sub-Saharan African Countries," World Development, Elsevier, vol. 31(1), pages 107-130, January.
    13. 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.
    14. 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.
    15. 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.).
    16. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
    17. 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.
    18. 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.
    19. 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.
    20. Fry, Maxwell J, 1993. "Monetary Policy Reaction to Foreign Debt Accumulation in Developing Countries," The Manchester School of Economic & Social Studies, University of Manchester, vol. 61(0), pages 60-75, Suppl..
    21. 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.
    22. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    23. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    24. Cuddington, John T., 1987. "Capital flight ," European Economic Review, Elsevier, vol. 31(1-2), pages 382-388.
    25. Niels Hermes & Robert Lensink & Victor Murinde, 2002. "Flight Capital and its Reversal for Development Financing," WIDER Working Paper Series DP2002-99, World Institute for Development Economic Research (UNU-WIDER).
    26. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    27. 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.
    28. 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, April.
    29. Fatehi, Kamal, 1994. "Capital flight from Latin America as a barometer of political instability," Journal of Business Research, Elsevier, vol. 30(2), pages 187-195, June.
    30. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bienvenido Ortega & Jesús Sanjuán & Antonio Casquero, 2019. "Illicit Financial Flows: Another Road Block to Human Development in Low- and Middle-Income Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(3), pages 1231-1253, April.
    2. repec:nam:befdwp:10 is not listed on IDEAS
    3. Abroskin A.S. (Аброскин, А.С.) & Abroskina N.A. (Аброскина, Н.А.), 2016. "Shadow Cross-Border Capital Flows: Contemporary Concepts, Principles and Information Base of Accounting and Measurement [Теневые Трансграничные Потоки Капитала: Современные Концепции, Принципы И Ин," Working Papers 2135, Russian Presidential Academy of National Economy and Public Administration.
    4. Isaac Kwesi Ampah & Gabor David Kiss, 2019. "Economic Policy Implications of External Debt and Capital Flight in Sub-Saharan Africa’s Heavily Indebted Poor Countries," Society and Economy, Akadémiai Kiadó, Hungary, vol. 41(4), pages 523-542, December.
    5. Raghbendra Jha & T. Palanivel, 2007. "Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region," Departmental Working Papers 2007-02, The Australian National University, Arndt-Corden Department of Economics.
    6. 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.
    7. Vincent A. Onodugo & Ijeoma E. Kalu & Oluchukwu F. Anowor & Nnaemeka O. Ukweni, 2014. "Is Capital Flight Healthy For Nigerian Economic Growth? An Econometric Investigation," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 3(1), pages 10-24.
    8. Jozef Pacolet & Joris Vanormelingen, 2015. "Illicit Financial Flows: concepts and first macro estimates for Belgium and its 18 preferred partner countries," BeFinD Working Papers 0110, University of Namur, Department of Economics.
    9. Nirmol Chandra Das & Mohammad Ashraful Ferdous Chowdhury & Md. Nazrul Islam, 2021. "Nonlinear Threshold Effects of Institutional Quality on Capital Flight: Insights From Bangladesh," International Journal of Asian Business and Information Management (IJABIM), IGI Global, vol. 12(1), pages 43-59, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Niels Hermes & Robert Lensink & Victor Murinde, 2002. "Flight Capital and its Reversal for Development Financing," WIDER Working Paper Series DP2002-99, World Institute for Development Economic Research (UNU-WIDER).
    3. 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.
    4. Beja Jr, Edsel, 2010. "Balance of Payments-consistent unreported flows," MPRA Paper 21699, University Library of Munich, Germany.
    5. 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.
    6. Jean Claude Kouakou Brou & Mamadou Thiam, 2023. "External debt and capital flight in sub-Saharan Africa: The role of institutions," Economics Bulletin, AccessEcon, vol. 43(4), pages 1642-1655.
    7. Kouakou Jean Claude Brou & M. Thiam, 2023. "External debt and capital flight in sub-Saharan Africa: The role of institutions [Dette extérieure et fuite des capitaux en Afrique subsaharienne : Le rôle des institutions]," Post-Print hal-04540643, HAL.
    8. Léonce Ndikumana & Mare Sarr, 2016. "Capital flight and foreign direct investment in Africa: An investigation of the role of natural resource endowment," WIDER Working Paper Series wp-2016-58, World Institute for Development Economic Research (UNU-WIDER).
    9. Josef Brada & Ali Kutan & Goran Vukšić, 2011. "The costs of moving money across borders and the volume of capital flight: the case of Russia and other CIS countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(4), pages 717-744, November.
    10. Léonce Ndikumana & Mare Sarr, 2016. "Capital flight and foreign direct investment in Africa: An investigation of the role of natural resource endowment," WIDER Working Paper Series 058, World Institute for Development Economic Research (UNU-WIDER).
    11. Leonce Ndikumana & Mare Sarr, 2016. "Capital Flight and Foreign Direct Investment in Africa: An Investigation of the Role of Natural Resource Endowment," SALDRU Working Papers 167, Southern Africa Labour and Development Research Unit, University of Cape Town.
    12. Qian, Xingwang & Steiner, Andreas, 2017. "International reserves and the maturity of external debt," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 399-418.
    13. Ndikumana, Leonce & Boyce, James K., 2003. "Public Debts and Private Assets: Explaining Capital Flight from Sub-Saharan African Countries," World Development, Elsevier, vol. 31(1), pages 107-130, January.
    14. Sebri, Maamar & Dachraoui, Hajer, 2020. "Resources bless BRICS," MPRA Paper 100423, University Library of Munich, Germany.
    15. Jan Babecky & Tomas Havranek & Jakub Mateju & Marek Rusnak & Katerina Smidkova & Borek Vasicek, 2011. "Early Warning Indicators of Economic Crises: Evidence from a Panel of 40 Developed Countries," Working Papers 2011/08, Czech National Bank.
    16. Aida Caldera Sánchez & Filippo Gori, 2016. "Can Reforms Promoting Growth Increase Financial Fragility?: An Empirical Assessment," OECD Economics Department Working Papers 1340, OECD Publishing.
    17. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel S., 2012. "Wealth effects in emerging market economies," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 155-166.
    18. NGUENA Christian-Lambert, 2014. "External Debt Origin, Capital Flight and Poverty Reduction in the Franc Zone: Does the Economic Consequences of Sino-African Relationship matter?," Working Papers of the African Governance and Development Institute. 14/016, African Governance and Development Institute..
    19. 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.
    20. Gründler, Klaus, 2015. "The vanishing effect of finance on growth," Discussion Paper Series 133, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2005/199. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.