Capital Flight Research Articles

Rural Governmentality in Alberta: A Case Study of Neoliberalism in Rural Canada

Rural communities in Canada have faced a long history of capital and labour flight, resource extraction, and political marginalization. At the same time, despite decades of efforts toward rural development and economic/social diversification, there is little evidence of change or improved resilience in rural Canada. This article seeks to examine this lack of change against the backdrop of that developmental history, and the underlying logics that have informed rural policy-making. Focusing on Alberta, this paper argues that rural communities face a third phase of developmental approaches embedded within a neoliberal governmentality, one that emphasizes equality of opportunity, competition, capacity-building, and collaboration. This approach is simultaneously situated within a broader neoliberal objective of defining both citizens and rural communities as economic actors. In turn, this article examines the scope, scale, and role of energy and agricultural investments as a demonstration of how neoliberal governmentality structures not only how rural development is framed, but constructs economic agency for rural communities as “the only game in town” for the very populations that bear the costs. As a result, the historical failure of rural development is unlikely to change, yet, rather than be understood as problematic, will increasingly be seen as a failure on the part of rural communities themselves.

All at Sea: The Misguided War on Offshore Financial Centres

Corporate taxes are inefficient and have disproportionate deadweight costs. The optimal corporate tax rate is zero. Most voters are easily deluded into thinking that corporate taxes impose no cost on them, and politicians around the world have cut corporate tax rates, not because they have decided to put the welfare of the population ahead of electoral self-interest, but due to tax competition. The electoral cost of the economic effects of increased capital flight would outweigh the electoral gains from holding up corporate tax rates. Politicians outside tax havens are reluctant corporate tax-cutters and reluctant participants in tax competition. Ending such competition would suit them better than winning it. Principles that UK and EU politicians claim to support have been abandoned in the war on tax havens, including the sovereignty of third countries in tax policy, the right of law-abiding citizens to keep their financial affairs private, and the rule of law. The war on tax havens is an inherently dirty business. Most tax havens are stable democracies, with the rule-of-law and tax regimes that are superior to the inefficient systems that have become the norm in Western countries. The UK and EU have no proper justification for interfering in their affairs.

The rise of national central banks' TARGET balances in the euro area: a comment

With the implementation of the Eurosystem's asset purchase programme (APP), national central banks’ TARGET balances have risen. For the European Central Bank, this reflects cross-border payments and portfolio rebalancing in the context of the APP. Minenna et al. (2018) disagree and claim that the causes of rising TARGET balances (2015–2017) have been the persistent current-account surplus of Germany and ‘capital flight.’ This comment explains that rising TARGET balances occur under specific monetary policy configurations and that the context of the APP was critical to account for rising TARGET balances. It then questions the decomposition approach employed by the authors by arguing that it shows accounting correspondences, not causality, and concludes that there is no established two-way association between TARGET balances and actual vulnerabilities of the euro area.

The shortcomings of models in country risk management

Risk management models are supposed to help anticipate and manage risks; that is, to reduce the level of uncertainty. The objective is to come up with a number of early warning signals that will awake the attention of financial analysts and fund managers. Overall, econometric models aim at simplifying the current reality to better predict the future around a limited number of scenarios. Too often, however, risk management models are based on unrealistic assumptions and assume normal probability distributions. Despite incorporating expertise and judgment to avoid any dogmatic view of models, they fall short of representing the true picture and complexity of a sovereign country with its complex legal, economic, institutional and cultural characteristics. Whatever the quality of econometric models, data sources and economic intelligence, they will never match the information and signals that domestic residents receive and accumulate daily. Country residents are embedded into an endless flow of sociopolitical, cultural, economic and financial inputs. This paper discusses a pragmatic solution to enhance the quality of risk assessment models, eg incorporating capital flight as an early warning indicator of country risk volatility. There is large evidence that in countries with weak institutions, private capital outflows and dollarisation are the by-product of a political and regulatory environment that is not conducive to dynamic and inclusive socio-economic growth.

Exit strategies, capital flight and speculative attacks: Europe's version of the trilemma

In the winter 2011/12, a wave of internal capital flight prompted the ECB to abandon its exit strategy and announce an unprecedented monetary expansion. We analyze this episode in several dimensions: (i) we provide an event-study analysis, covering key variables from national central banks' balance sheets, (ii) we rationalize the empirical patterns in a formal discussion of the constraints in a monetary union and (iii) we analyze different indicators of redenomination risk in the euro area. Finally, we argue that the euro area entails an inherent policy trilemma that makes it prone to speculative attacks.

Tax Revenue Effort in Nigeria

Today, countries, especially the developing ones rebase their Gross Domestic Product (GDP) to determine their economic strength. Nigeria as an acclaimed giant in Africa cannot but continuously examine variables which may impact the economy. It is in this light that this study was intended to investigate the Determinants of Tax Revenue Effort in Nigeria. To achieve this, secondary data, as time series data, covering a period of 1980 to 2015, were used and sourced from the Central Bank of Nigeria Statistical Bulletin, Annual Abstract from the Office of the National Bureau of Statistics and the Federal Inland Revenue Service, both in Nigeria. The dependent variable of Tax Revenue Effort (TTAXeff) was regressed on macro independent variables of Agricultural Sector Productivity(AGRICSP), Manufacturing Sector Productivity (MANSP), Tourism Sector Productivity(TOURSP), Telecommunication Sector Productivity(TELCOMSP), Capital Flight(CAPFR), Trade Openness (TOPEN) and Human Capital Development(HCD). The study adopted a longitudinal research design and used the Autoregressive Distributed Lag (ARDL) technique to evaluate the models. The findings revealed that Agricultural Sector Productivity, Tourism Sector Productivity, Trade Openness and Human Capital Development had significant and positive effects on Tax Revenue Effort in Nigeria. The Manufacturing Sector Productivity, Telecommunication Sector Productivity and Capital Flight had significant but negative effects on Tax Revenue Effort in Nigeria. There is however the need to consistently ensure better performance of tax efforts in the country through strict and meticulous enforcement of tax rules and tax administrations procedures in the country.

Monetary Regime Choice and Optimal Credit Rationing at the Official Rate: The Case of Russia

Stabilizing monetary policy in a small open economy is constrained by the open economy trilemma. In a crisis this constraint may not allow the Central Bank to cut interest rates because this may cause significant capital flight and the ensuing problems. In this paper we investigate whether the Central Bank’s credit rationing at the official rate (CROR) may soften the open economy trilemma constraint and improve the results of monetary policy for different monetary regimes. We construct a DSGE model appropriate for analysing the forward-looking behaviour of households facing a non-zero probability of credit rationing at the official rate. A simulation of estimated on a Russian data model and welfare optimization exercises allow us to contribute to the question of optimal monetary regime choice and to analyse the role of credit rationing for different monetary regimes.We have found significant credit rationing in the quarterly Russian data of 2001-2014. The share of liquidity constrained (non-Ricardian) households and the probability of CROR are estimated as 22% and 66% respectively. Welfare maximization exercises reveal a trade off between low-inflation and high-welfare solutions and favour of a floating exchange rate regime. Researching CROR gives mixed results. On the one hand we found the optimal value of the probability of CROR in both exchange rate-based and Taylor rule-based models. On the other hand the resulting improvement in welfare is very small.

The Destiny of the First Two Greek “Rescue” Packages: A Survey

This article analyzes the financial assistance provided to Greece in the first two rescue packages granted by the Troika (European Union, European Central Bank, and IMF). By drawing on official data and documentation, this study concludes that 97.3% of the disbursed sums were used to repay interest payments and debt principal and to recapitalize Greek banks. The article also reviews the literature on the topic, which varies widely in assessments. It critically discusses different suggested means of assistance, such as the TARGET 2 system, and alternative outlays for the sums disbursed, such as the financing of capital flight and the stability of Greek pensions and depositors.

Exchange Rate Misalignment and Capital Flight from Botswana: A Cointegration Approach with Risk Thresholds

This study investigates the impact of exchange rate misalignment on outward capital flight in Botswana over the period 1980–2015. The study uses the autoregressive distributed lag (ARDL) approach to cointegration and the Toda and Yamamoto (1995) approach to Granger causality. Botswana’s currency misalignment was caused by current account imbalances. The most important determinant of capital flight from Botswana is trade openness, which indicates that exportable commodities are misinvoiced leading to net capital outflows. Our main findings show that in the long-run, when the currency is overvalued, the volume of capital flight through trade misinvoicing declines and increasing foreign reserves does not reduce outward capital flight. However, when the currency is undervalued, the volume of capital flight through trade misinvoicing increases and foreign reserves reduce outward capital flight. Investors respond more to prospects of devaluation than to inflation. Botswana should tolerate overvaluation of the pula of only up to 5%. When the pula is overvalued beyond 5%, capital flight increases substantially. The government has to formulate trade regulations and monitor imported and exported commodities. Botswana should also implement capital controls to limit capital smuggling and maintain monetary autonomy.

Effect of Capital Flight on Foreign Direct Investment: Evidence from Multinational Corporations in Developing African Countries

This study investigates the effect of capital flight on foreign direct investment in developing nations of Africa. Secondary data employed for this study are obtained for Nigeria, Gabon, Botswana, Cameroon and South Africa from 2005-2014. The study adopts ordinary least square regression analysis to test the hypothesis of the study. The result from the regression analysis shows that capital flight has significant impact on foreign direct investment which represents t-statistic of 2.531 with F- statistic = 21.70; R2 = 0.837, and R-2 = 0.701 with the p-value 0.016 < 0.05%. It very well may be concluded from the outcome acquired that the consistent parameter over the long haul is certain. This infers if all the informative factors are held steady, outside direct speculation (FDI) will expand subsequently realizing expanded business age, increment Gross Domestic Product (GDP) of these countries, decline financing costs, sway decidedly on trade rates just as assistance in country working in less created countries. This study concluded that capital flight has a significant impact on foreign direct investment in developing nations of Africa. It therefore, recommends that foreign investors and MNCs should be meant to stop illicit outflows via capital flight through more stringent international tax laws aimed at entrenching transparency on how MNCs file in their tax returns.

Fighting African Capital Flight: Trajectories, Dynamics and Tendencies

An April 2015 World Bank report on attainment of the Millennium Development Goal (MDG) extreme poverty target has revealed that extreme poverty has been decreasing in all regions of the world with the exception of sub-Saharan Africa (SSA), in spite of the sub-region enjoying more than two decades of growth resurgence. This study builds on a critique of Piketty’s ‘capital in the 21st century’ and recent methodological innovations on reverse Solow-Swan to review empirics on the adoption of common policy initiatives against a cause of extreme poverty in SSA: capital flight. The richness of the dataset enables the derivation of 14 fundamental characteristics of African capital flight based on income-levels, legal origins, natural resources, political stability, regional proximity and religious domination. The main finding reveals that regardless of fundamental characteristic, from a projection date of 2010, a genuine timeframe for harmonizing policies is between 2016 and 2023. In other words, the beginning of the post-2015 agenda on sustainable development goals coincides with the timeframe for common capital flight policies.

Governance, Capital Flight and Industrialisation in Africa

The study examines the role of governance in modulating the effect of capital flight on industrialisation in Africa. The empirical evidence is based on Generalised Method of Moments and governance is bundled by principal component analysis, namely: (i) political governance from political stability and “voice and accountability”; (ii) economic governance from government effectiveness and regulation quality; and (iii) institutional governance from corruption-control and the rule of law. First, governance increases industrialisation whereas capital flight has the opposite effect; and second, governance does not significantly mitigate the negative effect of capital flight on industrialisation. Policy implications are discussed.

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The Bangkok Housing Market: Past Performance And Future Prospects

This paper provides an overview of the evolution of the housing market in Bangkok beginning in the boom period of the 1990s up to the most recent developments. Key summary data are provided and a simple model of housing supply is developed. While the market has recovered from its biggest crisis, there remain future challenges, some of which are likely to present themselves in other countries as well. The influence of Chinese investment and the risk of capital flight represent medium-term threats. In the long term, an aging population and growing income and wealth inequality are likely to impede prospects for broad-based growth in housing demand.

Formalization of implicit and explicit relations between tax and investment channels of capital flight

Formalization of implicit and explicit relations between tax and investment channels of capital flight

Explaining Judicial Authority in Dominant-Party Democracies: The Case of the Constitutional Court of South Africa

Why do authoritative constitutional courts sometimes thrive even in dominant-party regimes? This article identifies as a key determining factor the constitutional entrenchment of wealth redistribution via private corporate equity transfers. Since the policy threatens private capital, the dominant party would want to avoid massive capital flight by credibly committing to a restrained practice of indirect expropriation through an authoritative constitutional court that can apply a brake to the policy when it goes too far. The analysis is based on an in-depth case study of the Constitutional Court of South Africa. The empirical research includes conducting an expert survey on judicial appointments that tests a crucial observable implication of the theory, as well as performing process tracing that involves interviewing South African business elites.

Costly Fix: Power, Politics, and Nature in the Tar Sands by Ian Urquhart

Reviewed by: Costly Fix: Power, Politics, and Nature in the Tar Sands by Ian Urquhart Kyle Conway Costly Fix: Power, Politics, and Nature in the Tar Sands. By Ian Urquhart. Toronto: University of Toronto Press, 2018. ix + 351 pp. Map, tables, references, index. $39.95 paper. Two things flow in Ian Urquhart's Costly Fix—oil and money—and if there is a lesson to be learned, it's that capital is even more liquid than the sticky bitumen found in Alberta's tar sands. The book traces the history of the tar sands, from the late 19th century when Canada's settler government first surveyed oil-rich northern Alberta, to the present day when international oil companies have taken full advantage of the land (and favorable tax arrangements). It situates Alberta in the global oil trade and shows how international markets shape local and regional governments in Canada's northern Great Plains. The Albertan and Canadian governments, Urquhart argues, have acted in the name of development, wealth, and North American energy independence, but they have sold access to their resources at a bargain price. The key idea in Costly Fix is that of market fundamentalism, or the paradoxical belief that the solution to problems caused by unfettered markets is the removal of still more fetters. The challenge governments face is that oil companies can always take their business—and the jobs they create—elsewhere. The threat of capital flight pits governments of resource-rich areas against each other. As a result, regional economies are anything but regional, as in the case of Alberta, where successive provincial and federal governments have sought to accommodate international oil companies, all the while reacting to changes in the United States as it has sought to decrease its dependence on oil from the Middle East. Over the years, Alberta's government, Urquhart writes, has renegotiated its leasing terms with oil companies, always in the companies' favor, even when Albertans have demanded that their government protect their environmental and financial interests better. Even groups opposed to development have been hampered in their efforts. For instance, the specific terms limiting who can address Alberta's regulator, the Energy Resources and Conservation Board (ERCB), have prevented most environmental groups from testifying. Groups must demonstrate that they would be "directly and adversely affected" by a company's actions, a test the ERCB interprets in the narrowest possible way. First Nations have faced similar structural restrictions. In their case, they have also taken a pragmatic approach to allowing oil exploration on their land: money from oil companies helps them solve problems related to immediate material needs, but at the cost of long-term environmental damage. Overall, Costly Fix is a thorough and well-argued polemic. Although it would benefit by engaging with similar books (such as Jon Gordon's Unsustainable Oil or Dominique Perron's L'Alberta autophage, both of [End Page 172] which describe similar structural and discursive contradictions), it provides a detailed account of Alberta's tar sands and demonstrates the degree to which money and oil move through Alberta, linking it inextricably to the larger network of global capital. Kyle Conway Department of Communication University of Ottawa Copyright © 2019 Center for Great Plains Studies, University of Nebraska–Lincoln

Mechanism of Capital Flight Control in Developed and Developing Countries (Case Study of France and Mexico)

Nowadays, as a result of globalization, export of capital in huge quantities from developed and developing countries, including the one performed in contravention of currency and customs law and illicit financial flows, is going on. Legal and illegal forms of capital export (capital flight) in the midst of financial uncertainty are in the focus of research interest because such movements of capital have a negative impact on the economic capacity of the country and result in severe macroeconomic, political and social consequences. This issue appears relevant as a mechanism of capital flight control in developed and developing countries needs to be studied for the purpose of which cases of France and Mexico have been considered. It is noted that in developed counties illicit financial flows fall under the jurisdiction of special federal agencies such as Tracfin, a service of the French Ministry of Finance. The paper presents an analysis of Tracfin's control of illicit financial flows in France. The amount of capital flight from France is estimated by such balance of payment item as the net errors and omissions. Analysis of capital flight from developing countries is performed by Global Financial Integrity (GFI). Thus, a correlation between the amount of illegal financial outflows from Mexico and macroeconomic crises was identified on the basis of data on Mexico.

Domestic financial instability and foreign reserves accumulation in China

AbstractUsing a time series analysis, this paper argues that domestic financial instability, which increases the potential for resident‐based capital flight from the domestic currency, provides an incentive for China to hold more foreign reserves in the short run. To measure its domestic financial conditions, we construct a monthly Chinese financial stress index, which is used as a proxy for the possibility of capital flight. The empirical results show that this index is a significant determinant of the movements of China's foreign reserves around its trend and that using M2 as a proxy for domestic financial instability as suggested by previous studies is not a valid strategy for China. It is suggested that greater attention should be given to the role of domestic financial conditions in explaining China's short‐run demand for foreign reserves.

Challenges of the Nigerian Banking Sector and the Way Forward

Nigerian banking sector struggle with challenges in the day to day running of their business activities, challenges are enormous and can either be market or operational challenges and regulatory or reforms challenges instituted by the regulatory agencies such as CBN, NDIC, SEC and CIBN etc. Therefore, this paper seeks to examine the challenges facing the Nigerian banking sector and proper possible solutions to the challenges based on the prevailing economic environment. The paper utilized questionnaires as source of data collection, fifteen out of 24 banks were selected based on purposive sampling method. Chi-Square (x2) method was adopted as a statistical tool of data analysis to analyze the collected data. The result reveals that myriad of challenges exist in the Nigerian banking sector some of which are challenges both within and outside Nigeria. Banks are left behind in technological innovation aspect of banking transactions, movement of high volume of deposit or capital flight to foreign banks by the political class which reduce banks opportunity to expand their market base and the prevalent of fraud in the sector also hinders the banks progress, these challenges affects the sector to compete equally with banking sector in the developed nations. However, we also found that the challenges does not affect their financial performance. It is recommended that that government and relevant regulatory agencies should put heads together to render support and address those challenges identified that affect the sector, also Nigerian banking sector should invest in both technological innovation and human capital development, they should imbibe the culture of good corporate governance and stick to the issue of banking ethics and professionalism among others.