The Analysis Of Capital Flight's Impact Factors And Influence

Capital flight is an important phenomenon accompanied by the debt crisis in Latin American in 1980s, the financial crisis in Southeast, Asian, Russia, Argentina in 1990s, as well as one of the financial crisis's affecting factor. The economists paid special attention and begin in-depth research on this subject just from that. Scholars have focused on different aspect and direction in the process of research. They mainly concentrated in the determents of capital flight, the impact on Macroeconomic, and the selection and amendment of its estimation methods. There is still a large exploration space in this study area as the capital flight in some way is quite invisible and cannot been reflect from the balance of sheet. Also it is much difficult to measure and define what capital flight is. As a result, these are all the focus of this area.It is the world financial crisis in 2008 which give the paper inspiration. This crisis begins from the developed countries, the American and European Union economy are seriously damaged during the crisis, investors withdraw their capital from developing countries. As a result the developing countries supposed to suffer from a large capital outflow and the domestic economy development can be influenced by this fluctuation. This is already the inevitable phenomenon resulting from the economy globalization, therefore how will capital flight been influenced and how will it influence other aspect of economy, these subject become this paper's focus, especially on the determents on capital flight.According to most of the literature describes, in order to avoid a country's political and economic risk, as well as to acquire more earnings, the investors choose to transfer their property to a safer or favorable investment environment. For the long-term capital outflow, they are more vulnerable to the change of economic fundamental situation, for example the investment environment, the stability of domestic political and economic situation, and also the government policy and so on. While for the short-term capital outflow, it is more sensitive to the international economy environment. This short-term capital flow is also called hot money, which is mainly composed of some large mutual fund or the sovereign state fund, and for the purpose of obtain higher short-term capital yield. This kind of capital flight mainly subjected to the fluctuation of international interest, exchange rate and capital revenue rate. Because of these capital have a large size, they always aggravate the asset price bubble or hasten the financial crisis. This paper take China for example, selects some typical index stand for the some determents for co-integration test. And the test result indicates, there is a significant linear relation between the increment of foreign debt, the foreign exchange reserve rate, the financial deficit, inflation rate, economic grow rate, different national interest rate and China's capital flight. And these factors can explain the capital flight well.The fourth part of this paper is about the impact of capital flight to economy. The effect can generally be divided into three aspects, to the economy growth, to the international balance payment, and to the financial system. As capital is one of the three elements, capital, labor force, and technology, which can drive the economy growth. No matter what kind of capital flight will bring a country bad effect, especially to the capital scarce developing countries. Also capital flight can short a country's tax base, cause fluctuation of a country's capital price as interest rate and exchange rate. All these will damage developing countries'growth. The impact on the balance of payment includes the effect to exchange rate, foreign exchange reserve and financial deficit. They cannot be ignored. In developing countries, capital flight can increase the national bank system risk. It can create a lot of non-performing loans, weaken its settlement ability. Meanwhile capital flight has an in-depth impact to capital market. In Mexico financial crisis in 1994, the large scale capital flight used to make the Mexico's stock market suffer from a continuous plunge; this on the other hand accelerate the flight speed, and worsen the crisis situation. Besides, capital flight can cause the off-shore intermediate. As above, capital flight can bring bad effect to developing countries, and different economy structure can suffer not the same impact.As the form of capital flight different from the country's economy structure, the related policy tools can be different. The fifth chapter introduces the emerging market countries and countries from African. The emerging market countries have different risk correlation from developed countries, therefore they once become the most popular investment place for the hot money. These countries generally suffer from the risk that short-term capital outflow. During the emerging countries, Russia is another type. Capital flight is a problem troubled Russia many years. For the bad economy environment, Russia always lost a lot of domestic capital. The Russia government had turned out many strict capital controls, but in some way it became one of the capital flight reasons. To some African countries, it is quite another kind similar to the Latin American debt crisis in 1980s, that is in for one aspect they have large foreign debt, for another they became one of the biggest capital funders to other countries.