Does financial liberalization decrease capital flight? A panel causality analysis


YALTA A. Y. , Yalta A. T.

INTERNATIONAL REVIEW OF ECONOMICS & FINANCE, vol.22, no.1, pp.92-100, 2012 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 22 Issue: 1
  • Publication Date: 2012
  • Doi Number: 10.1016/j.iref.2011.09.003
  • Title of Journal : INTERNATIONAL REVIEW OF ECONOMICS & FINANCE
  • Page Numbers: pp.92-100
  • Keywords: Capital flight, Financial liberalization, Emerging markets, Panel causality, ECONOMIC-GROWTH, FLOW, INVESTMENT, COUNTRIES, MARKET, TESTS, RICH

Abstract

We employ a panel causality approach in order to examine whether financial liberalization affects the magnitude of capital flight, which measures unrecorded accumulation of foreign assets by the private sector. Our data from 21 emerging market economies for the period between 1980 and 2004 show no significant evidence of a causal relationship. Lagged values of capital flight, however, seem to increase its current level, indicating its self-reinforcing characteristic. Our results suggest that financial liberalization policies per se may not be helpful in reducing capital flight. (C) 2011 Elsevier Inc. All rights reserved.