SOM theme C: Economic and Financial Environment

This paper provides the first serious attempt to examine the relationship between political risk and capital flight for a large set of developing countries. The outcomes of the analysis show that in most cases political risk variables do have a statistically robust relationship to capital flight once domestic and international macroeconomic circumstances are added, at least when the robustness test as proposed by Sala-i-Martin (1997) is applied. We conclude that on the basis of the analysis in this paper we have found support for the hypothesis that political risk leads to increased capital flight