Capital Flight from Ukraine: Measurement and Drivers

• Thesis title in Czech: Únik kapitálu z Ukrajiny: měření a určující faktory
• Thesis title in English: Capital Flight from Ukraine: Measurement and Drivers
• Key words: Ukraine, Capital Flight, World Bank Residual Method, Balance of Payments, Shadow Economy
• English key words: Ukraine, Capital Flight, World Bank Residual Method, Balance of Payments, Shadow Economy
• Academic year of topic announcement: 2016/2017
• Thesis type: diploma thesis
• Thesis language: angličtina
• Department: Department of Political Science (23-KP)
• Supervisor: PhDr. Jaromír Baxa, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 15.06.2017
• Date of assignment: 15.06.2017
• Date and time of defence: 18.06.2019 07:30
• Venue of defence: Jinonice - U Kříže 8, Praha 5, J3014, Jinonice - místn. č. 3014
• Date of electronic submission: 10.05.2019
• Date of proceeded defence: 18.06.2019
• Opponents: Mgr. Michal Paulus

Guidelines

Working hypotheses:

1. Ukraine experienced high levels of capital flight over the years.
2. Higher capital flight volumes occur in response to changes in macroeconomic and political situation in the country.
3. Capital flight intensified after the beginning of war in the east of Ukraine in 2014.
4. World Bank Residual method is able to capture the extent of unrecorded capital flows from Ukraine.

References

Nkurunziza, J. Capital Flight and Poverty Reduction in Africa in Ajayi, S. I. and L. Ndikumana (Eds.) (2014) Capital Flight from Africa: Causes, Effects and Policy Issues. Oxford: Oxford University Press.
Boyce, J.K. and Ndikumana, L., 2001. Is Africa a net creditor? New estimates of capital flight from severely indebted sub-Saharan African countries, 1970-96. Journal of Development Studies, 38(2), pp.27-56.
Brada, J.C., Kutan, A.M. and Vukšić, G., 2011. The costs of moving money across borders and the volume of capital flight: the case of Russia and other CIS countries. Review of world economics, 147(4), pp.717-744.
Kar, D. and Cartwright-Smith, D., 2009. Illicit financial flows from developing countries: 2002-2006.
Kar, D. and Spanjers, J., 2014. Illicit financial flows from developing countries: 2003-2012. Washington, DC: Global Financial Integrity.

Preliminary scope of work

Topic Characteristics / Research Question(s):
Capital flight has been in the center of attention of researchers and policy makers for over two decades, especially in the area of development economics. Previous research estimates that total amount of illicit financial flows from developing countries amounts to 1 trillion USD (Kar and Spanjers, 2014). The goal of this thesis is to calculate volumes of capital flight from Ukraine in 1994-2017, and define main determinants of these flows. Ukraine is a post-transition economy, characterized by high levels of corruption, extensive shadow economy and political instability. In recent years, country experienced a major economic and political crisis, as military conflict in the east of Ukraine began in 2014. In this thesis, we want to investigate the impact of economic and political developments in the country on the dynamics of capital outflows from Ukraine. Previous research on the topic shows adverse impact of capital flight on poverty reduction efforts, economic growth, levels of domestic investment and income inequality in the country (Nkurunziza, 2014). Capital flight is particularly damaging in the situation when country borrows from abroad, since it diminishes funds available for debt service and diverts resources away from domestic investment (Ndikumana and Boyce, 2001).

Preliminary scope of work in English

Methodology:
In this thesis, we will apply World Bank Residual method to calculate volumes of capital flight from Ukraine. This method estimates capital flight as a residual difference between sources and uses of funds in the economy. Sources of funds constitute increases in total external debt stock and inflows of foreign direct investment. Uses of funds represent foreign exchange used to cover deficit on the current account and increase foreign exchange reserves. Positive value of residual, defined as a difference between sources and uses of foreign exchange, indicates unrecorded capital flight, while negative value of the residual signifies capital inflow. World Bank Residual method uses data presented in Balance of Payments Statistics and data on external debt stock contained in International Debt Statistics assembled by the World Bank.

Outline:
1. Introduction.
2. Literature review: definitions, measurement methods and effects of capital flight.
3. Methodology: advantages of the preferred method; description of the variables; adjustments to the original method.
4. Results.
5. Discussion of results.
6. Conclusion and policy recommendations.