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A Development Comparative Approach to Capital Flight:



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A Development Comparative Approach to Capital Flight The Case of the Middle East and North Africa 1970 2002 Abdullah Almounsor Economics Department University of Massachusetts Amherst Nov 2006 abdullah econs umass edu Abstract Capital flight from developing countries represents lost potential for economic growth and development This is the first study to estimate capital flight and examine its determinants from the Middle East and North Africa region MENA from 1970 2002 The analysis employs a comparative approach relating capital flight of each country to the model of development pursued Resource based industrialization states register the largest volume of capital flight amounting to more than 273 billion of 1995 USD Accumulated interest earnings capital flight amounts to more than 935 billion of current USD On the other hand stateled development economies and balanced economies of the region show negative capital flight of 102 8 and 112 7 billions of 1995 USD respectively In other words substantial unrecorded capital inflows Capital flight under the first development model is assisted by natural resource exporting rents the outward orientation of most economies and the monarchial character of most of their political systems In contrast capital inflows under the last two development models indicate smuggling of goods and other types of avoidance of taxes and trade regulations and is assisted by their inward looking strategies one party or militarily controlled governments and capital controls In addition to calculating the volume of capital flight from the region this study presents an econometric analysis of its determinants and discusses policy implications based on the results Iam grateful to the members of my dissertation committee Gerald Epstein James Boyce Arslan Razmi and James Hientz for their helpful comments and discussions on earlier drafts of this work and on this version This paper also benefited from comments by Peter Skott and Michael Ash for whom I



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