Role of instability in affecting capital flight magnitude: An ARDL bounds testing approach Report as inadecuate




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Abstract

Capital flight resulting from hot money has been a popular issue recently. The effect of capitalflight is unquestionably bad to the domestic economic condition. The current global economicslowdown exposes a bigger risk of capital flight to developing countries. Likewise, the causalrelationship of capital flight and political stability as well as exchange rate stability is not clearlyobserved yet in the literature. This paper aims to analyse this issue and fill the research gap. Ourpaper extends previous studies by using another measure of political risk index, and also exchangerate stability has not been really examined by previous studies in the case of capital flight. A morefocused study on one country may give a direct policy implication to the policymakers of thecountry, rather than a panel data study. We employed time-series data of Indonesia for 35 yearsfrom 1980 to 2015 and use ARDL procedure, which is really suitable for our research objectivesand sample used, to analyse the data. We find that political risk plays a significant role in affectingthe magnitude of capital flight. Furthermore, the results show that both capital flight and exchangerate stability are endogenous variables, and movement in one variable will affect the movement ofanother variable. Our main suggestion for the policy makers to prevent capital flight is to maintainpolitical and exchange rate stability in the country. In short, preventing capital flight is all aboutmaintaining domestic stability, either political stability or economic stability.



Item Type: MPRA Paper -

Original Title: Role of instability in affecting capital flight magnitude: An ARDL bounds testing approach-

English Title: Role of instability in affecting capital flight magnitude: An ARDL bounds testing approach-

Language: English-

Keywords: Capital Flight; Political Stability; Exchange Rate Stability; ARDL bounds tests-

Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion ProcessesC - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial EconometricsG - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets-





Author: Hasnul, Al Gifari

Source: https://mpra.ub.uni-muenchen.de/72086/







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