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Robbing the Riches: Capital Flight, Institutions and Debt

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  • Valerie Cerra
  • Meenakshi Rishi
  • Sweta Saxena

Abstract

Capital flight undermines economic growth and the effectiveness of debt relief and foreign aid, and sometimes drains more resources from poor countries than does debt service. In an analysis of a large panel of developing and emerging market countries using annual data for 1970-2001, we show that both institutions and macro policies robustly affect capital flight. Our study also supports the existence of a revolving door relationship between debt and capital flight. More notably we find countries with weak institutions have a greater propensity to accumulate debt because weak institutions spur capital flight, which, in turn, creates a financing need.

Suggested Citation

  • Valerie Cerra & Meenakshi Rishi & Sweta Saxena, 2008. "Robbing the Riches: Capital Flight, Institutions and Debt," Journal of Development Studies, Taylor & Francis Journals, vol. 44(8), pages 1190-1213.
    • Handle: RePEc:taf:jdevst:v:44:y:2008:i:8:p:1190-1213
    DOI: 10.1080/00220380802242453
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    References listed on IDEAS

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