Long-Term Consequences of Capital Outflows for Transition Countries

Abstract

One of the most common and urgent problems for every country in the world is the problem of capital outflow abroad. This problem is especially serious for transition countries. These countries, moving away from the former economic systems, are trying to adapt their economies to the market conditions. So, the aim of the work is to analyze and study the basic principles of long-term consequences of capital outflows for transition countries, being based on the relevance of the subject of the scientific article. Theoretical and methodological principles of the research concerning the long-term consequences of capital outflows for transition countries in the scientific article are presented on the basis of such research methods as observation, analysis, comparison, description and generalization. The information base for comparing the trends of capital outflow for transition countries is The World Bank statistics, data from the independent international Tax Justice Network and data from the Wall Street Journal and Heritage Foundation. The presentation of practical results of capital outflows from transition countries (some EU countries and some members of the Commonwealth of Independent States, Georgia and Ukraine) is given using the following indicators: 1) Growth rates of foreign direct investment from transition countries abroad, %; 2) Growth rates of foreign direct investment in the economy of transition countries, %; 3) the share of transition countries in the structure of the global offshore market in 2020, %; 4) index of economic freedom of transition countries. Based on the results of analysis and study of the theoretical and practical principles of capital outflows for transition countries, it is established that such actions will have the following consequences for transition countries. Here we are talking about: reduction of private investment; high rate of financial transactions with offshore jurisdictions; high level of political instability in the country; high level of corruption in the country at various levels of government; devaluation of the national currency; high level of speculation in the financial and particularly in the credit and foreign exchange markets; low level of lawfulness in the system of capital export in other countries. It was found that the share of transition countries (Bulgaria, Estonia, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Hungary, Croatia, the Czech Republic, Russia and Ukraine) in the structure of the global offshore market is only 0.94%. Estonia, Lithuania, the Czech Republic and Georgia have the highest levels of economic freedom among the transition countries under study, while Tajikistan, Turkmenistan, Uzbekistan and Ukraine have the lowest levels of economic freedom.

Keywords: Capital outflow, Transition country, Transition economy, Market economy, Offshore jurisdiction