External Debt and Capital Flight in India, 1971-1989: A Theoretical and Empirical Investigation

Posted: 10 Apr 1997

Date Written: January 1996

Abstract

The accumulation of external assets via "capital flight" by private residents of many developing countries has been associated with the simultaneous existence of external indebtedness in these countries. This paper explores the complex association between capital flight and external debt from a theoretical standpoint as well as an empirical perspective. The paper utilizes Granger methodology to examine the direction and pattern of causality between capital flight and external debt in India using annual data over the period 1971-1989. Econometric analysis suggests the existence of unidirectional causality--i.e., from external debt to capital flight. The policy implications of this finding are critically investigated. The evidence of uni- directional causality is also interpreted as being suggestive of a pragmatic policy approach that combines growth promotion and debt forgiveness to stem the outflow of future capital flight from the developing world.

JEL Classification: F21, F32, O16

Suggested Citation

Rishi, Meenakshi, External Debt and Capital Flight in India, 1971-1989: A Theoretical and Empirical Investigation (January 1996). Available at SSRN: https://ssrn.com/abstract=4814

Meenakshi Rishi (Contact Author)

Seattle University ( email )

901 12th Ave
Broadway
Seattle, WA 98122
United States
206-296-2078 (Phone)

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