Financial Development and Capital Flight: Is the Association Non-Linear?

Review of International Economics, Forthcoming

25 Pages Posted: 26 Jan 2013

See all articles by Nabamita Dutta

Nabamita Dutta

University of Wisconsin, La Crosse

Date Written: 2011

Abstract

The paper revisits the relationship between capital flight and financial development. Previous research has focused on a linear relationship between the two variables. Using a broad panel of 107 middle income and low income economies, the results reveal that a non-linear association exists between financial development and capital flight. The impact of financial development on capital flight depends on the level of financial development. Financial development triggers capital flight for countries at intermediate and higher levels of financial development, but the impact of financial development on capital flight is negative for sufficiently higher levels. The results are robust with alternate specifications, additional control variables and alternative measures of financial development.

Keywords: Capital Flight, Financial Development, Low- and Middle- Income Countries

JEL Classification: F39, 016

Suggested Citation

Dutta, Nabamita, Financial Development and Capital Flight: Is the Association Non-Linear? (2011). Review of International Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2206631

Nabamita Dutta (Contact Author)

University of Wisconsin, La Crosse ( email )

Dept. of Economics, 1725 State Street
La Crosse, WI 54601
United States
6087855294 (Phone)

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