External Debt, Corruption and Capital Flight in Emerging Economies: A Dynamic GMM Analysis

Abstract

This study investigates the relationship between external debt, corruption, and capital flight in emerging economies over the period 2004–2020. The selected timeframe ensures the availability of consistent data while encompassing both periods of macroeconomic stability and episodes of global financial stress. To address potential endogeneity, unobserved country-specific effects, and the dynamic nature of capital flight, the analysis employs the Arellano–Bond dynamic panel estimator (dynamic panel framework estimated using the Generalized Method of Moments (GMM)). This approach uses lagged levels of the endogenous variables as instruments, allowing for consistent estimation of the impact of external debt and corruption on capital flight. The methodology provides robust evidence on the dynamic interactions between governance quality, external borrowing, and capital outflows in emerging economies.