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Capital Inflows and Capital Outflows: Measurement, Determinants, Consequences

  • Andrew Powell
  • Dilip Ratha
  • Sanket Mohapatra

This paper develops new estimates of capital outflows and is the first, to our knowledge, to analyze the determinants, consequences and inter-relationship between inflows and outflows. Given the dynamics and individual country effects, we use a panel-VAR and find that inflows and outflows are inter-related, that lower inflows/higher outflows lead to lower growth, and among other effects to a higher fiscal deficit, which feeds back to lower inflows/higher outflows. These results provide evidence of vicious and virtuous cycles. We find no strong evidence that official flows crowd-in private ones. We conclude it is particularly important for developing countries to maintain prudent policies, and especially adequate fiscal discipline, to avoid vicious and reinforce virtuous cycles.

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Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number veinticinco.

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Length: 52 pages
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:udt:wpbsdt:veinticinco
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  1. Anke Hoeffler & Catherine A. Pattillo & Paul Collier, 1999. "Flight Capital as a Portfolio Choice," IMF Working Papers 99/171, International Monetary Fund.
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  9. Chinn, Menzie D. & Dooley, Michael P. & Shrestha, Sona, 1999. "Latin America and East Asia in the context of an insurance model of currency crises," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 659-681, August.
  10. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
  11. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," UCLA Economics Working Papers 538, UCLA Department of Economics.
  12. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  13. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  14. Terry Sicular, 1998. "Capital Flight and Foreign Investment: Two Tales from China and Russia," UWO Department of Economics Working Papers 9803, University of Western Ontario, Department of Economics.
  15. Takatoshi Ito & Anne O. Krueger, 2000. "The Role of Foreign Direct Investment in East Asian Economic Development, NBER-EASE Volume 9," NBER Books, National Bureau of Economic Research, Inc, number ito_00-2, July.
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  17. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-31, December.
  18. Lisa M. Schineller, 1997. "An econometric model of capital flight from developing countries," International Finance Discussion Papers 579, Board of Governors of the Federal Reserve System (U.S.).
  19. Chang, P H Kevin & Claessens, Stijn & Cumby, Robert E, 1997. "Conceptual and Methodological Issues in the Measurement of Capital Flight," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(2), pages 101-19, April.
  20. Eggerstedt, Harald & Brideau Hall, Rebecca & van Wijnbergen, Sweder, 1993. "Measuring capital flight : a case study of Mexico," Policy Research Working Paper Series 1121, The World Bank.
  21. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46.
  22. Nathan Sheets, 1995. "Capital flight from the countries in transition: some theory and empirical evidence," International Finance Discussion Papers 514, Board of Governors of the Federal Reserve System (U.S.).
  23. Shang-Jin Wei, 2000. "Local Corruption and Global Capital Flows," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 303-354.
  24. Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
  25. Prakash Loungani & Paolo Mauro, 2001. "Capital Flight from Russia," The World Economy, Wiley Blackwell, vol. 24(5), pages 689-706, 05.
  26. Nathan Sheets, 1996. "Capital flight from the countries in transition: Some empirical evidence," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(3), pages 259-277.
  27. Claessens, Stijn & Naude, David, 1993. "Recent estimates of capital flight," Policy Research Working Paper Series 1186, The World Bank.
  28. 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.
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