Does capital flight tone down economic growth? Evidence from emerging Asia

Abstract

Purpose This study aims to offer an up-to-date estimate of capital flight from selected emerging Asian economies and examine the anti-growth phenomenon of capital flight by using annual data for the period 1981–2019. Design/methodology/approach The study relies on residual methods to derive the estimate of capital flight with necessary adjustments. It then applies the autoregressive distributed lag Bounds testing approach in examining the impact of capital flight on the economic growth of Asian emerging economies. Findings The study identifies capital flight as the attributor to the slower economic growth of the selected emerging economies of Asia. Practical implications Apart from appropriate policies addressing the issues causing capital flight, unleashing the way of private sector-led growth of the emerging countries with necessary policy, infrastructural, institutional and regulatory support can rather help them retain and repatriate domestic capital. Originality/value The capital flight estimates in earlier studies are antithetical as they differ in terms of definition and estimation procedure. Again, the growth effect of capital flight in these economies has received meager attention in research and policy debates. Furthermore, being country-specific or region-specific, existing studies are unable to compare the growth effect of capital flight for different emerging economies in this region. Examining the growth effects for a large number of countries separately based on a common estimate of capital flight can resolve these issues that this study aims to do.