Development threshold, capital flows, and financial turbulence

Abstract

a b s t r a c tWe study capital flows in a panel of 130 countries, and derive the implications for the observed patterns of capital flows and capital controls before and into the crisis of 2008-11. We find that the size of capital flows is positively correlated with country's income level. In addition, capital flight has a non-linear relationship with the income level. Using the Hansen threshold estimation, we identify a three-stage threshold effect: for low-income countries (GDP per capita below US$ 3,000), capital flight increases as the income level rises; and only after the economy passes a threshold level (GDP per capita above US$ 5,000), capital flight declines with income. We conclude with a case study of Brazil and Korea, observing that the decisions to implement capital control measures tend to be pushed around by the feedbacks among economic growth, currency appreciation, and the global financial conditions.

Nonlinear Threshold Effects of Institutional Quality on Capital Flight

“…The previous studies on this subject used both both symmetric (Osei-Assibey, Domfeh & Danquah, 2018; Asongu & Nwachukwu, 2017;Ramiandrisoa & Rakotomanana, 2016;Efobi & Asongu, 2016;Hasnul & Masih, 2016;Gankou, Bendoma & Sow 2016;Yalta & Yalta 2012;Alam & Quazi, 2003;) and asymmetric (Ding & Jinjarak, 2012) approaches on the relationship between independent and dependent variables. For this paper, in order to capture the appropriate threshold effect, the relationship among variables is observed from an asymmetric point of view.…”

“…Therefore, it might be the question that whether poor or better institutional quality in Bangladesh is a factor leading its capital outflow to abroad. Ding & Jinjarak (2012) concluded that capital flight having non-linear threshold relationship with income level. They found that up to a certain threshold level of income capital flight usually rises, while beyond that level capital tends to decline in response to any further increase in income.…”