Capital Flight and Economic Growth in Iran

Beginning in the mid-1980s, the phenomenon of capital flight from developing countries received considerable attention in the economics literature. Capital flight destroys the domestic macroeconomic environment and decreases transparency and accountability. It restricts financial resources when a country is looking for economic growth and development. The purpose of this article is to measure the amount of capital flight in Iran during 1981-2012, and to investigate the long-run effects of estimated capital flight on the Iranian economic growth in this period. To do so, the amount of capital flight in Iran has been measured using World Bank (1985) and Erbe (1985) approach. Then, the Auto-Regressive Distributed Lag (ARDL) procedure has been applied in order to estimate a growth equation. Results show that capital flight has a negative impact on economic growth in Iran. JEL Classification: O4, E22, C01.