Financial Looting and Controls on Resident Outflows

Bo Li, Alessandro Rebucci () and Hui Tong

No 33406, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a theory of preemptive controls on capital outflows by residents as a second-best tool to mitigate boom-bust cycles in domestic asset markets and prevent wealth transfers from uninformed traders to pump-and-dump speculators, or financial “looters,” as in Akerlof and Romer (1993). The model implies that when domestic financial regulation is imperfectly designed or enforced, controls on residents' outflows reduce retail investor manipulation (which we call looting), stabilize asset prices, and diminish capital flight. The paper also provides compelling evidence that supports the main implications of the model when applied to housing markets, which is particularly relevant to institutions in developing countries. We find that deposit outflows to haven countries increase before busts in house prices, and countries with stricter controls on resident outflows experience significantly more contained deposit outflows to such destinations. The empirical analysis reveals a similar pattern for new incorporations in haven countries based on data from the Panama Papers.

JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-fdg
Note: DEV IFM POL
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33406.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33406

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33406
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().