Effect of Capital Flight on Investment: Evidence from Emerging Markets

Ayse Yalta

Emerging Markets Finance and Trade, 2010, vol. 46, issue 6, 40-54

Abstract: Much of the discussion on international capital movements is directed toward studying the effects of foreign capital flows, whereas the implications of resident capital outflows (capital flight) from developing countries remain largely unanalyzed. Using a dynamic panel methodology for twenty-two emerging market economies between 1975 and 2000, this paper investigates the effect of capital flight on investment and how this effect changes with financial liberalization policies. The empirical findings indicate that capital flight reduces private investment dramatically but does not have any effect on public investment. However, no statistically significant impact of financial liberalization on the marginal effect of capital flight on investment is found.

Keywords: capital flight; emerging markets; financial liberalization; investment; resident capital outflows (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (14)

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