Estimating Capital Flight and Its Determinants in Iran with a New Approach

This study aims to measure magnitude of capital flight from Iran by employing Ndikumana and Boyce (2003) method during the period 1976-2018. In order to check the existence of long-run relationship between capital flight and its determinants, it applies the Bounds Testing Approach developed by Pesaran et al (2001) within a general-to-specific econometrics methodology. Then, it applies the Autoregressive Distributed Lags approach to estimate the short run and long run behavior of capital flight from Iran. The results show that capital flight has high records during the first years of the Islamic revolution and the eight-year war between Iraq and Iran, so that the highest capital flight (141.1 billion dollars) has been estimated for 1979-1980 fiscal year. In addition, the findings indicate that the highest and lowest capital flights have been estimated in 2011 and 1997, respectively. In recent years, capital flight has been increasing due to sharp exchange rate fluctuations. Moreover, increases in inflation and the government fiscal deficit significantly contribute to capital flight and the increase in net foreign exchange reserves reduces the capital flight.