Capital Flight and Fiscal Policy in Developing Countries: Evidence from Ethiopia

Abstract

This study examines the effect of fiscal policy on capital flight in Ethiopia using time series data from 1970 to 2012, employing the Autoregressive Distributed Lag (ARDL) model. The results indicate that past capital flight, changes in debt, and government expenditure had no significant impact on capital flight in Ethiopia, while external debt, taxation, and expenditure practices under different political regimes did have a significant effect. The study details policy implications emerging from the empirical results.