Capital flight, poses a considerable challenge to the stability and economic growth of nations. In the context of the Association of Southeast Asian Nations (ASEAN), a regional economic community comprising ten member states, understanding the factors that contribute to capital flight is of utmost importance. The ASEAN region has experienced remarkable economic growth and integration over the past few decades. However, despite its overall progress, several member states have faced significant challenges related to capital flight. This phenomenon has begun since 1980s in the developing countries and they faced with a very remarkable rate of capital flight over the past three decades (Alam and Quazi, 2003, Johannesen and Zucman, 2014).
FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS *** INTERNATIONAL FINANCE REPORT Factors affecting capital flight in ASEAN countries from 2010 to 2021 Credit class : TCHE414 Lecturer : Assoc Prof PhD Mai Thu Hien Group : Ha Noi, 2023 TABLE OF CONTENTS CHAPTER I INTRODUCTION 1.1 Rationale of research 1.2 Aims and objective 1.3 Scope of the research 1.4 Research method 1.5 Structure of the research CHAPTER II LITERATURE REVIEW 2.1 Theoretical framework 2.1.1 Overview of capital flight 2.1.1.1 Definition 2.1.1.3 Capital Flight Consequences 10 2.1.2 Factors impacts on capital flight 11 2.2 Literature review 15 2.2.1 On Capital Flight from the ASEAN-8 Countries: A Panel Data Estimation (Navik Istikomah, Indra Suhendra, Cep Jandi Anwar ,2020) 15 2.2.2 Analyzing Effective Factors of Capital Outflow from the Middle East and North African Countries (MENA) (Heydari, Hassan and Jariani, Farzaneh, 2020) 15 2.2.3 The Effect of Ease of Doing Business on Capital Flight: Evidence from East Asian Countries (Zahra Dehghan Shabani , Sara Parang, 2018) 16 2.2.4 Determinants of Asian capital flight and the impact of 1997 economic crisis 16 (Pornchai Chunhachinnda and Kulpatra, 2007) 16 2.2.5 Determinant of capital flight from the selected ASEAN countries (Zulkornain Yusop, 1999) 17 CHAPTER III MODEL SPECIFICATION 18 3.1 Methodology in the study 18 3.2 Theoretical model specification 19 3.2.1 Introduction to the model 19 3.2.2 Derive the model 19 CHAPTER IV ESTIMATION RESULT 21 4.1 Descriptive statistic 21 4.2 Choosing the estimated model .22 4.3 Model estimation result 23 4.4 Model test for heteroskedasticity 24 4.5 Model test for multicollinearity 25 4.6 Model test for auto - correlation 25 4.7 Hypothesis testing 26 CHAPTER V IMPLICATIONS AND CONCLUSION 27 REFERENCES 31 TABLE OF FIGURES Table 3.1: Sources of data .18 Table 3.2: Explanation of the variables 19 Table 4.1: Statistical description of variables .21 Table 4.2: Coefficient correlation between variables 21 Table 4.3: Breusch - Pagan test and Hausman test result 23 Table 4.4: Model estimation result 23 Table 4.5: Breusch - Pagan test result 24 Table 4.6: Variance inflation factor 25 Table 4.7: Autocorrelation test result 25 Table 4.8: Hypothesis testing 26 CHAPTER I INTRODUCTION 1.1 Rationale of research Capital flight, poses a considerable challenge to the stability and economic growth of nations In the context of the Association of Southeast Asian Nations (ASEAN), a regional economic community comprising ten member states, understanding the factors that contribute to capital flight is of utmost importance The ASEAN region has experienced remarkable economic growth and integration over the past few decades However, despite its overall progress, several member states have faced significant challenges related to capital flight This phenomenon has begun since 1980s in the developing countries and they faced with a very remarkable rate of capital flight over the past three decades (Alam and Quazi, 2003, Johannesen and Zucman, 2014) There are many concerns in the developing countries regarding the capital flight due to its devastative effects thereof on the economic growth, welfare, macroeconomic stability, income distribution, illegal activities and other social development issues, including Asean countries (Zheng and Tang, 2009) According to the researchers, the capital flight can be considered as a worrying matter which implicitly denotes and indicates the illegal movement of capital from a country to another one (Adesoye et al., 2012) 1.2 Aims and objective By employing statistical techniques, econometric models, and utilizing relevant data sources, this study aims to provide a comprehensive understanding of the drivers behind capital flight within the region It seeks to identify the macroeconomic indicators, policy variables, and external factors that significantly influence capital flight in ASEAN countries By understanding the factors that affect capital flight, governments can implement targeted measures to strengthen their economies, enhance investor confidence, and promote sustainable growth 1.3 Scope of the research Space: ASEAN countries including: Brunei Darussalam, Cambodia, Indonesia, Malaysia, Myanmar, Vietnam, Lao PDR, Singapore, Thailand, Philippines Time: Analysis was conducted by collect data of the factors affecting capital flight in ASEAN countries during 2010 to 2021 1.4 Research method The research methodology for the report on the analysis of factors affecting capital flight in ASEAN countries from 2010 to 2021, with a focus on a quantitative model incorporating Foreign direct investment, Inflation, GDP growth, Exchange rate, External debt, Differences in interest rate, Political stability index is as follows: Introspective Approach: The study will gather information from references, articles, and research conducted by experts on human development in ASEAN countries The study will analyze and synthesize the information collected to identify factors affecting capital flight in the region Quantitative Methods: The study will collect information from statistical documents on websites, including data from the World Bank, and national statistical agencies, and review econometric models from previous studies Qualitative Methods: The study will visualize the relationship between elements in the structure of capital flight in ASEAN countries and generalize the relationships of things The study will use this approach to provide a holistic understanding of the factors affecting capital flight in the region The research methodology aims to provide a comprehensive analysis of the factors affecting capital flight in ASEAN countries, using a combination of information collection and processing methods The study will use a variety of approaches to gather information and analyze the data, providing policymakers and researchers with evidence-based recommendations to crub capital flight, promote economic stability and foster sustainable development in ASEAN countries 1.5 Structure of the research The structure of research including chapters: Chapter I: Introduction Chapter II: Literature review Chapter III: Model specification Chap IV: Estimation results Chap V: Implications and Conclusion CHAPTER II LITERATURE REVIEW 2.1 Theoretical framework 2.1.1 Overview of capital flight 2.1.1.1 Definition In defining capital flight, each expert has used his/her own concept According to Cuddington (1986), capital flight is the short-term outflow of capital, both recorded as well as unrecorded and acknowledged as risky by the non-banking sector These short-term capital outflows are caused by the uncertainty of the economic or political situation in the country or for speculative purposes Cuddington measures capital flight as recorded shortterm capital outflows and net errors and omissions as capital outflows that are not recorded on the balance of payments An additional definition of capital flight was given by Khan and Haque (1987), who defined capital flight as all capital outflows from developing countries which lead to the loss of potentially available capital resources and economic growth, regardless of the background of the occurrence of the flow of capital from within the country However, in this study, we use the first suggested definition for capital flight from the World Bank (Erbe, 1985) Capital flight is calculated as a residual, which is the difference between capital inflow and the use of capital Capital inflow consists of increases in external debt and foreign direct investment, while the use of capital is to cover the current account deficit and changes in foreign exchange reserves The residual reflects the net invoices of the private sector abroad and at home 2.1.1.2 The measurement of capital flight There are some different standards which have been presented for measuring the rate of capital flight with regards to the different definitions into the capital flight Generally, there are three approaches to measure capital flight: the computational approach to balance of payments (Cuddington, 1986),