Structural adjustment and the political economy of capital flight

Nosrati, E., Kern, A., Reinsberg, B. and Sevinc, D. (2023) Structural adjustment and the political economy of capital flight. Socio-Economic Review, (doi: 10.1093/ser/mwad010) (Early Online Publication)

Abstract

The financial haemorrhaging of lower income countries in the form of capital flight is a leading cause of global economic inequality. On an annual basis, trillions of dollars bypass the already starved fiscal spaces of nations mired in poverty, making their way instead to lucrative offshore bank accounts governed by secrecy jurisdictions. The present article relates this phenomenon to the institutional architecture of the global financial system and provides causal evidence that structural adjustment programmes implemented at the behest of international financial organizations amplify such capital flight. In particular, by isolating exogenous variation in policy conditionalities through the use of instrumental variables, we find that trade liberalization, financial sector reforms and privatization measures mandated by the International Monetary Fund in developing contexts substantially increase financial outflows occurring via current and capital account transactions. Our findings thus document the contribution that structural adjustment makes to an underappreciated facet of contemporary global inequality.

• Item Type: Articles
• Status: Early Online Publication
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Reinsberg, Dr Bernhard
• Authors: Nosrati, E., Kern, A., Reinsberg, B., and Sevinc, D.
• College/School: College of Social Sciences > School of Social and Political Sciences > Politics
• Journal Name: Socio-Economic Review
• Publisher: Oxford University Press
• ISSN: 1475-1461
• ISSN (Online): 1475-147X
• Published Online: 25 April 2023
• Copyright Holders: Copyright © The Author(s) 2023
• First Published: First published in Socio-Economic Review 2023
• Publisher Policy: Reproduced under a Creative Commons license