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Does Financial Liberalization Decrease Capital Flight? A Panel Causality Analysis

  • A. Yasemin Yalta
  • A. Talha Yalta

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.

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Paper provided by TOBB University of Economics and Technology, Department of Economics in its series Working Papers with number 1102.

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Date of creation: Jun 2011
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Handle: RePEc:tob:wpaper:1102
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