Development aid and illicit capital flight: Evidence from Nepal

While illicit capital flight is a major concern of policymakers in developing countries, there only little research on the possible link between and development aid. In this paper, we address issue for Nepal, stereotypical financially closed economy that highly dependent resources from abroad. Distinguishing features our approach are use narrowly defined proxy flight, based trade cost-adjusted mirror statistics, focus foreign-exchange cash component We document robust partial correlation aid outward economically statistically significant. Interestingly, positive not observable remittances, an alternative form inflows where motivation absent. Furthermore, it visible FX but broader definitions include in-kind transfers, or multilateral IMF loans. Finally, when comparing subcomponents export underinvoicing import overinvoicing, latter driving results.