The Effect of Economic, Political and Financial Risk on Capital Flight: Dynamic Panel Approach

Capital flight is a growing problem in the global economy that has negative effects on the economic growth and development of developing and has also deepened the development gap between countries. Different factors affect this phenomenon but risk and uncertainty are among the most important institutional components of each country that affect the return on investment and can lead to capital flight. The present study aims to investigate on the effects of economic, political and financial risks on capital flight using panel data during the period 2000-2019 and in 45 selected developing countries.  The results of using the panel data error correction method through fully corrected least squares estimators (FMOLS) show the significant and positive effect of all three types of risk factors on capital flight. In addition, official and foreign currency exchange rate variables have positive effects, and economic growth rate, real interest rate and corruption control index have negative effects on capital flight. This study shows that under strict sanctions and the consequent high political and economic risk, the phenomenon of capital flight can not be countered in Iran. To prevent capital flight, Iran needs to reduce its international tensions, especially with large and influential countries in the global economy.