Does Capital Flight Harm Domestic Investment? An Empirical Investigation from a Panel of Emerging and Advanced Europe

Abstract

In this study, we estimate the size of capital flight and its spillover effect on domestic investment in selected European economies during the 2006 – 2016 period. The results based on the fixed effects ordinary least squares method suggest that capital flight has an adverse impact on investment in the economies included in our sample. As a robustness check, we also use the system generalized method of moments (GMM). Our results based on a mix of emerging and advanced economies are fairly similar with previous studies based on emerging economies alone (Yalta, 2010) and developing economies (Ndiaye, 2009).