Investigating capital flight in South Asian countries: The dual influence of terrorism and corruption

Abstract

This specific research initiative aims to intricately examine the intricate dynamics connecting terrorism, corruption, and capital flight within the context of South Asian economies, encompassing countries including Bangladesh, India, Pakistan, and Sri Lanka. The principal objectives of this study entail a comprehensive investigation into the synergistic impacts of terrorism and corruption on the prevalence of capital flight. To realize these objectives, the study employs longitudinal data from 1990 to 2019, adopting the portfolio choice framework as its theoretical underpinning. In terms of methodology, the empirical inquiry uses the Generalized Method of Moments (GMM) estimation technique. The empirical findings derived from this analysis distinctly establish a statistically noteworthy and positive correlation between terrorism, corruption, and the occurrence of capital flight across multiple South Asian nations. In light of these discerning outcomes, it is strongly recommended that the governments of South Asian countries prioritize and actively pursue the fortification of their institutional governance mechanisms. This strategic approach is deemed crucial in efficaciously counteracting the escalation of capital flight. Specifically, a targeted focus on augmenting institutional governance practices, fostering transparency, fortifying anti-corruption measures, and intensifying counterterrorism efforts could collectively contribute to reducing capital flight tendencies. By undertaking these recommendations, South Asian governments can foster an environment of enhanced economic stability, attractiveness for investment, and sustainable growth, thereby deterring the adverse impact of capital flight while concurrently combatting the underlying challenges posed by terrorism and corruption.