Determinants of Capital Flight in Bangladesh: an Econometric Estimation

Abstract

This study investigates the causes of capital flight from Bangladesh during the study period ranging from 1973 to 2013. Linear regression  model has been used  and  the  method  of  least  squares (OLS)  has  been  applied  to estimate  the  various  determinants  on  capital flight. The results illustrate external debt, foreign direct investment inflows, and foreign reserves to be the main causes of capital flight. Apart from Econometric Analysis, we have also shown that the other reasons of capital from Bangladesh includes economic crimes that generated through huge illegal incomes, whether from the willful default of bank loans, corruption in tax administration, manipulation in stock exchanges, over-invoicing and under-invoicing in trade settlements, leakage in public development expenditure, or illegal financial deals in the running of state-owned enterprises.  Statistically we have proved that External Debt is the major cause of Capital Flight from Bangladesh. In future proper external debt management and utilization will be key strategy for Bangladesh Govt. to combat the capital flight from Bangladesh and also improving the foreign reserve can balance the lost capital or wealth from Bangladesh.        

Keyword: Flight Capital, Unit Root Test, Multicollinearity Test, Heteroskedasticity, Correlation Matrix, ARCH Test.