Nonlinear Threshold Effects of Institutional Quality on Capital Flight: Insights From Bangladesh

Nirmol Chandra Das, Mohammad Ashraful Ferdous Chowdhury, Md. Nazrul Islam

Source Title: International Journal of Asian Business and Information Management (IJABIM)12(1)

ISSN: 1947-9638|EISSN: 1947-9646|EISBN13: 9781799861041|DOI: 10.4018/IJABIM.20210101.oa3

MLA

Das, Nirmol Chandra, et al. "Nonlinear Threshold Effects of Institutional Quality on Capital Flight: Insights From Bangladesh." IJABIM vol.12, no.1 2021: pp.43-59. http://doi.org/10.4018/IJABIM.20210101.oa3

APA

Das, N. C., Chowdhury, M. A., & Islam, M. N. (2021). Nonlinear Threshold Effects of Institutional Quality on Capital Flight: Insights From Bangladesh. International Journal of Asian Business and Information Management (IJABIM), 12(1), 43-59. http://doi.org/10.4018/IJABIM.20210101.oa3

Chicago

Das, Nirmol Chandra, Mohammad Ashraful Ferdous Chowdhury, and Md. Nazrul Islam. "Nonlinear Threshold Effects of Institutional Quality on Capital Flight: Insights From Bangladesh," International Journal of Asian Business and Information Management (IJABIM) 12, no.1: 43-59. http://doi.org/10.4018/IJABIM.20210101.oa3

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Abstract

Over the years, capital flight is a major concern for the countries where institutional quality is severely deficient. Almost all the literature emphasized the role of institutional quality on development. However, a possible question still remains unsettled what would be the optimum or threshold level of institutional quality that would create a milieu of least possible capital flight. The purpose of this study is to find the threshold value of institutional quality indicators and its impact on the capital flight of Bangladesh. Using the ICRG and WGI governance data over the period 1989 to 2016, the nonlinear regression proved that up to certain threshold level of institutional quality, interest rate differential reduces while economic growth stimulates net capital flight (NCF) of Bangladesh. Additionally, up to a certain threshold, level of corruption and interest rate differential lower NCF while beyond that level no effect exists. However, none of those independent variables affects NCF whenever the role of government stability threshold is considered.