Risk and Capital Flight in Developing Countries

Capital flight and calculation methods are one of concepts that could not been arrived at a consensus in economics literature. Capital flight is defined generally as transferring resident assets of countries to abroad. In addition, political and economic uncertainty and including all capital outflows done with speculative aims in this scope is more acceptable and appropriate approach. Definitional-level differences are the fundamental reasons of measuring methods and their results. When examining in terms of developing countries, it has been seen that regarding capital flights which fall in importance and amount relatively between second half of 1990s and 2000s have extended fast from current years. This situation is not different for economies in transition. Currently the analyses regarding capital flights draw attention with its results that support concerns about transition countries. In this context, calculation methods and the results obtained constituted a different research subject for transition economies. Our study has aimed to analyze of capital flight for 1995-2015 period in the context of selected economies in transition. In analyses, World Bank (WDR 1985) calculation method of capital flight was used. The results have differentiated according to calculation methods, also draw attention to significant increases especially in current years and support concerns regarding increase of capital flight. While our study makes political suggestions directed at decreasing capital flights of relevant countries, redraw attention to discussion in this context.

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Under-invoicing of Imports: A Case Study of Pakistan

The Pakistan Development Review ◽

10.30541/v32i4iipp.1141-1155 ◽

1993 ◽

Vol 32 (4II) ◽

pp. 1141-1155

Author(s):

Zafar Mahmood ◽

Riaz Mahmood

Keyword(s):

Developing Countries ◽

Foreign Exchange ◽

The Other ◽

Capital Flight ◽

Foreign Competition ◽

Black Markets ◽

Tax Revenues ◽

Exchange Markets ◽

Travel Abroad

Most of the developing countries, including Pakistan, set high tariffs and stringent quantitative restrictions (QRs) to protect their domestic industries from foreign competition and to raise tax revenues. Both tariffs and QRs, due to the weak enforcement of controls, provide incentives to smuggle goods through illegal channels and to under-invoice imports through legal channels of trade to evade import taxes. In particular, under-invoicing of imports challenge both the abovementioned obj~ctives; that is. the under-invoicing of imports confers much lower protection to domestic industries than that accorded by statutory rates of import duties, while the tax revenues are lost as import taxes are evaded. Tariff barriers, QRs, and foreign exchange rationing give rise to black foreign exchange markets. Foreign remittances and under-invoicing of exports are the major supply sources of foreign exchange in black markets. On the other hand, the demand for illegal foreign exchange comes largely from the nationals who want to travel abroad, capital flight abroad, and the under-invoicing of imports which requires the purchases of black market foreign exchange to make full payment to the foreign exporter.

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An Econometric Model of Capital Flight from Developing Countries

International Finance Discussion Paper ◽

10.17016/ifdp.1997.579 ◽

1997 ◽

Vol 1997 (579) ◽

pp. 1-46 ◽

Cited By ~ 5

Author(s):

Lisa M. Schineller ◽

Keyword(s):

Developing Countries ◽

Econometric Model ◽

Capital Flight

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Mechanism of Capital Flight Control in Developed and Developing Countries (Case Study of France and Mexico)

Известия Байкальского государственного университета ◽

10.17150/2500-2759.2018.28(4).616-626 ◽

2018 ◽

Vol 28 (4) ◽

pp. 616-626

Author(s):

Lyudmila Khamaganova ◽

Anastasia Mikhaleva

Keyword(s):

Developing Countries ◽

Flight Control ◽

Negative Impact ◽

Social Consequences ◽

Capital Flight ◽

Capital Export ◽

Financial Flows ◽

Financial Uncertainty ◽

Illicit Financial Flows ◽

The One

Nowadays, as a result of globalization, export of capital in huge quantities from developed and developing countries, including the one performed in contravention of currency and customs law and illicit financial flows, is going on. Legal and illegal forms of capital export (capital flight) in the midst of financial uncertainty are in the focus of research interest because such movements of capital have a negative impact on the economic capacity of the country and result in severe macroeconomic, political and social consequences. This issue appears relevant as a mechanism of capital flight control in developed and developing countries needs to be studied for the purpose of which cases of France and Mexico have been considered. It is noted that in developed counties illicit financial flows fall under the jurisdiction of special federal agencies such as Tracfin, a service of the French Ministry of Finance. The paper presents an analysis of Tracfin's control of illicit financial flows in France. The amount of capital flight from France is estimated by such balance of payment item as the net errors and omissions. Analysis of capital flight from developing countries is performed by Global Financial Integrity (GFI). Thus, a correlation between the amount of illegal financial outflows from Mexico and macroeconomic crises was identified on the basis of data on Mexico.

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An empirical study of the relationships betwen corruption, capital leakages and country risk: part I

Cuadernos de difusión ◽

10.46631/jefas.2006.v11n20.01 ◽

2006 ◽

Vol 11 (20) ◽

pp. 63-73

Author(s):

Michel Bouchet ◽

◽

Bertrand Groslambert ◽

Keyword(s):

Developing Countries ◽

Emerging Market ◽

Private Investment ◽

Development Aid ◽

Capital Inflows ◽

Capital Flight ◽

International Capital Markets ◽

Low Profile ◽

Development Policies ◽

National Environment

This paper investigates the relationship between corruption and capital flight in developing countries. Part I tackles the challenge of defining and measuring capital flight, as well as the various root causes of expatriated savings. Our research contributes to the corruption and capital market literature in several ways. First, the issue of capital flight has attracted less attention than that of external capital inflows in emerging market countries. In particular, capital flight has kept a low profile in academic circles until the late 1990s. In addition, research often looks at capital flight as a portfolio issue, and very few studies consider corruption as a «push factor». Second, our paper looks at why capital flight deserves renewed interest, as the globalization of financial markets broadens investment diversification opportunities for domestic residents. Increasingly, official agencies express concern regarding the recycling of generous development aid flows and heavy borrowing in the international capital markets outside the developing countries’ economies. In the aftermath of the G-7 1996 Cologne meeting, larger and broader debt relief, coupled with a strong emphasis on sustainable development policies, focuses on the urgency of capital flight repatriation. Third, we assume that corruption combines two kinds of centrifugal forces for capital leakages: corruption-driven money leaves a country because of fear of being caught by the tax and judiciary authorities; in addition, money leaves a country because of fear that a corrupt government will not provide a stable and conducive environment for safe savings and profitable investment. In Part II of our research, we test the assumption that the higher the level of corruption, the less conducive the national environment for private investment, and the greater the capital leakages.

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