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La Mesure de la Fuite des Capitaux et son Impact sur l’Investissement Domestique : Cas des Pays Émergents
[Measurement of capital flight and its impact on domestic investment in emerging countries]

Author

Listed:
  • Dachraoui, Hajer
  • Smida, Mounir

Abstract

One of the main challenges faced by developing countries is to stimulate investment for achieving higher growth rates. On the other hand, the capital flight phenomenon, which is defined as unrecorded capital outflows by the residents of a capital-scarce country, causes detrimental outcomes on the economies of many developing countries. In this work, we investigate the potentially devastating effects of capital flight on investment in presence of financial liberalization policies. To do so, first, we calculate the capital flight magnitude for 19 emerging market economies during the period 1984-2010 based on the residual method of the World Bank. Afterwards, we employ a dynamic panel methodology that allows controlling for country-specific effects as well as accounting for the potential endogeneity of the explanatory variables. The results suggest that capital flight has a negative and significant effect on total domestic investment. This finding is still robust after disaggregating the total sample into Latin American countries, Asian countries and Mena countries. The results reveal also that capital flight reduces significantly the private investment while its effect on public investment is found to be insignificant. Therefore, the negative impact of capital flight on total domestic investment operates through the private investment channel more than that of public investment. If developing countries can repatriate capital and prevent it from fleeing by implementing sound macroeconomic policies, these funds could be used to enhance domestic investment.

Suggested Citation

  • Dachraoui, Hajer & Smida, Mounir, 2014. "La Mesure de la Fuite des Capitaux et son Impact sur l’Investissement Domestique : Cas des Pays Émergents
    [Measurement of capital flight and its impact on domestic investment in emerging countries]
    ," MPRA Paper 62740, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62740
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    File URL: https://mpra.ub.uni-muenchen.de/62740/1/MPRA_paper_62740.pdf
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    References listed on IDEAS

    as
    1. Lawanson, Akanni O, 2007. "An Econometric Analysis of Capital Flight from Nigeria: A Portfolio Approach," Research Papers RP_166, African Economic Research Consortium.
    2. Fedderke, J. W. & Liu, W., 2002. "Modelling the determinants of capital flows and capital flight: with an application to South African data from 1960 to 1995," Economic Modelling, Elsevier, vol. 19(3), pages 419-444, May.
    3. 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.
    4. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    5. Hippolyte Fofack & Léonce Ndikumana, 2010. "Capital Flight Repatriation: Investigation of its Potential Gains for Sub-Saharan African Countries," African Development Review, African Development Bank, vol. 22(1), pages 4-22.
    6. A. Yasemin Yalta, 2010. "Effect of Capital Flight on Investment: Evidence from Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(6), pages 40-54, November.
    7. J. K. Boyce & L. Ndikumana, 2001. "Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-96," Journal of Development Studies, Taylor & Francis Journals, vol. 38(2), pages 27-56.
    8. Joshua E. Greene, 2002. "The Output Decline in Asian Crisis Countries; Investment Aspects," IMF Working Papers 02/25, International Monetary Fund.
    9. 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.
    10. Hermes, Niels & Lensink, Robert & Murinde, Victor, 2002. "Flight Capital and its Reversal for Development Financing," WIDER Working Paper Series 099, World Institute for Development Economic Research (UNU-WIDER).
    11. Adesoye, A. Bolaji & Maku, Olukayode E. & Atanda, Akinwande A., 2012. "Capital Flight and Investment Dynamics in Nigeria: A Time Series Analysis (1970-2006)," MPRA Paper 35836, University Library of Munich, Germany.
    12. James Boyce & Léonce Ndikumana, 2008. "New Estimates of Capital Flight from Sub-Saharan African Countries: Linkages with External Borrowing and Policy Options," Working Papers wp166, Political Economy Research Institute, University of Massachusetts at Amherst.
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    More about this item

    Keywords

    Capital flight ; Domestic investissement ; emerging countries; GMM.;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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