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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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File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-072002.pdf
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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
Contact details of provider: Postal: Miñones 2177 - (1428) Buenos Aires
Web page: http://www.utdt.edu/listado_contenidos.php?id_item_menu=4994

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  1. 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.
  2. 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.
  3. Eggerstedt, Harald & Hall, Rebecca Brideau & Van Wijnbergen, Sweder, 1995. "Measuring capital flight: A case study of Mexico," World Development, Elsevier, vol. 23(2), pages 211-232, February.
  4. 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, December.
  5. Alesina, Alberto F & Tabellini, Guido, 1988. "External Debt, Capital Flight and Political Risk," CEPR Discussion Papers 253, C.E.P.R. Discussion Papers.
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  7. 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.).
  8. 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.
  9. Menzie D. Chinn & Michael P. Dooley & Sona Shrestha, 1999. "Latin America and East Asia in the Context of an Insurance Model of Currency Crises," NBER Working Papers 7091, National Bureau of Economic Research, Inc.
  10. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  11. 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.
  12. 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.
  13. Claessens, Stijn & Naude, David, 1993. "Recent estimates of capital flight," Policy Research Working Paper Series 1186, The World Bank.
  14. Collier, Paul & Hoeffler, Anke & Pattillo, Catherine, 1999. "Flight capital as a portfolio choice," Policy Research Working Paper Series 2066, The World Bank.
  15. 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.
  16. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  17. 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.
  18. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46, March.
  19. 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.
  20. Etro, Federico & Ageloni, Ignazio & Alesina, Alberto, 2005. "International Unions," Scholarly Articles 4553008, Harvard University Department of Economics.
  21. Kant, Chander, 1998. "Capital Inflows and Capital Flight – Individual Countries Experience," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 644-661.
  22. Prakash Loungani & Paolo Mauro, 2000. "Capital Flight from Russia," IMF Policy Discussion Papers 00/6, International Monetary Fund.
  23. kant, C., 1996. "Foreign Direct Investment and Capital Flight," Princeton Studies in International Economics 80, International Economics Section, Departement of Economics Princeton University,.
  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. Simeon Inidayo Ajayi, 1997. "An Analysis of External Debt and Capital Flight in the Severely Indebted Low Income Countries in Sub-Saharan Africa," IMF Working Papers 97/68, International Monetary Fund.
  26. Shang-Jin Wei, 2000. "Why Does China Attract So Little Foreign Direct Investment?," NBER Chapters, in: The Role of Foreign Direct Investment in East Asian Economic Development, NBER-EASE Volume 9, pages 239-265 National Bureau of Economic Research, Inc.
  27. 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.).
  28. A. Abalkin & J. Whalley, 1999. "The Problem of Capital Flight from Russia," The World Economy, Wiley Blackwell, vol. 22(3), pages 421-444, 05.
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