Capital Flight and the Real Exchange Rate in Resource Scarce MENA Countries

Yasemin Yalta () and Talha Yalta ()
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Yasemin Yalta: Hacettepe University
Talha Yalta: TOBB University of Economics and Technology

No 1510, Working Papers from Economic Research Forum

Abstract: We analyze the determinants of capital flight in three resource scarce MENA countries namely Egypt, Morocco, and Tunisia. Our methodology involves both the linear and the nonlinear auto-regressive distributed lag (ARDL) cointegration approach, with a focus on asymmetric relationships between capital flight and the real exchange rate in order to distinguish the effects of appreciation and depreciation of the domestic currency on capital flight. Based on annual data between 1975 and 2019, we demonstrate that capital flight responds more to the real exchange rate depreciation in Egypt, and that the Arab Spring has resulted in higher capital flight in Egypt and Morocco in the long run. Our results also reveal that the real GDP growth rate and inflation are important factors affecting capital flight in Morocco, while the lagged values of capital flight and the institutional quality are more prevalent in Tunisia.

Pages: 18
Date: 2021-11-20, Revised 2021-11-20
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