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New Analysis of Capital Flight from Saudi Arabia: The Relation with Long-Term Economic Performance

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  • Abdullah Hussein Almounsor

Abstract

This research provides new estimates of illicit capital flight from Saudi Arabia using the Residual methodology and accounts for the social opportunity cost of those unregulated funds in terms of forgone economic growth by utilizing the Incremental Capital-Output Ratio (ICOR) approach. The empirical findings reveal that over the period 1971-2015, capital flight from Saudi Arabia reached over 212 billion of 2010 USD, causing an annual average of 3.57 percent of wasted potential additional economic growth for the same period. When considering the median instead, an incremental 1.72 percent would have been added annually to the aggregate output growth in Saudi Arabia had capital flight not taken place with the observed pattern during the analysis period. The research concludes with important suggestions for extending this work and crucial remarks for policymakers to tackle unregulated cross-border capital flows and minimize the related consequences. Critical policy measures include coordination with trading partners and key investment destination for Saudi capital flows, as well as strengthening of the regulatory framework for cross-border financial transactions based on best international practices.

Suggested Citation

  • Abdullah Hussein Almounsor, 2017. "New Analysis of Capital Flight from Saudi Arabia: The Relation with Long-Term Economic Performance," Applied Economics and Finance, Redfame publishing, vol. 4(6), pages 17-26, November.
    • Handle: RePEc:rfa:aefjnl:v:4:y:2017:i:6:p:17-26
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    References listed on IDEAS

    as
    1. Beja, Edsel Jr., 2007. "Capital Flight and Economic Performance," MPRA Paper 4885, University Library of Munich, Germany, revised 12 Sep 2007.
    2. Mr. Simeon Inidayo Ajayi, 1997. "An Analysis of External Debt and Capital Flight in the Severely Indebted Low Income Countries in Sub-Saharan Africa," IMF Working Papers 1997/068, International Monetary Fund.
    3. World Bank, 2017. "World Development Indicators 2017," World Bank Publications - Books, The World Bank Group, number 26447.
    4. Léonce Ndikumana & James Boyce, 2000. "Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-1996," Working Papers wp5, Political Economy Research Institute, University of Massachusetts at Amherst.
    5. Almounsor Abdullah, 2008. "Capital Flight Accounting and Welfare Implications in the MENA Region," Review of Middle East Economics and Finance, De Gruyter, vol. 4(2), pages 1-67, April.
    6. Léonce Ndikumana & James Boyce, 2010. "Measurement of Capital Flight: Methodology and Results for Sub-Saharan African Countries," African Development Review, African Development Bank, vol. 22(4), pages 471-481.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    capital flight; economic growth; Saudi Arabia; ICOR; the Residual approach;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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