Do Birds of the Same Feather Flock Together? Exploring the Relationship Between Capital Flight, and Physical Extraction of Non-Metallic Natural Resources

Abstract

A gush of capital has been siphoning out of the dominating trade bloc—BRICS in recent times. Against the backdrop of a rising trend in capital flight and scant literature on BRICS concerning this issue, this study explores the linkages between capital flight and physical extraction of natural resources while controlling for the political factors, such as governance effectiveness, state fragility index, and high casualty terrorist bombings on capital flight from these nations. We use the panel data spanning from 2003 to 2020 and employ a set of regression techniques like fixed effect, Driscoll–Kraay, and bias corrected method of moments (BCMM). The BCMM regression results indicate that a one unit increase in terrorism is associated with a 0.7% increase in capital flight, and a one-unit increase in non-metallic extractions is associated with a 10.6% increase in capital flight, with statistical significance at 1% and 5% levels respectively. Similarly, the findings of Fixed effect and Driscoll–Kraay confirm the robustness of BCMM regression output. Considering the importance of governance and political factors, our results endorse better governance effectiveness in reducing non-metal resources extractions and frame counter-terrorism strategies in restricting resident capital outflows.