Unraveling the Regional Determinants of Capital Flight: A Comparative Analysis

Syed Jaffar Abbas (), Shabbir Ahmad, Naveed Hayat and Shabbir Ahmad
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Syed Jaffar Abbas: Government Zamindar Graduate College
Shabbir Ahmad: University of the Punjab
Naveed Hayat: University of Education
Shabbir Ahmad: The University of Queensland

Journal of the Knowledge Economy, 2025, vol. 16, issue 3, No 90, 13516-13536

Abstract: Abstract This study explores the intricate linkage between capital flight (CF) and its determinants, how regional CF may be impacted by financial development and economic growth, and how these factors may vary across different regions of the world. The examined factors that contribute to capital flight in six different regions of the world include financial development, trade, GDP per capita growth, real interest rate, and the exchange rate. Using annual data from 186 countries from 2002 to 2021, we employ robust feasible generalized least squares (FGLS) models for empirical analysis, which remedy the problem of heteroskedasticity and autocorrelation. It is found that GDP per capita growth does not have a significant impact on CF in any region. Financial development shows a regionally varying influence on CF, with a significantly negative impact in East Asia and Pacific, and South Asia. A higher trade volume significantly increases CF in Europe and Central Asia, Latin America and the Caribbean, and South Asia. The real interest rate generally has an insignificant impact on CF, except in Sub-Saharan Africa where it has a significantly negative effect. The exchange rate significantly increases CF in East Asia and Pacific and South Asia, while its impact is insignificant in other regions. In East Asia and Pacific, higher GDP amplifies the negative impact of financial development on CF and exacerbates the positive impact of trade volume on CF. The study recommends stimulating economic growth, strengthening financial development, improving trade policies, and increasing exchange rate stability to lessen the danger of CF.

Keywords: Capital flight; Economic growth; Financial development; Exchange rate; Regional analysis (search for similar items in EconPapers)
JEL-codes: E44 F21 F31 F32 F38 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s13132-024-02462-2

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