Unravelling the natural resources and capital flight nexus: evidence from BRICS nations

Abstract

Purpose

The purpose of this study is to focus on the impact of environmental factors on capital flight from BRICS countries. This study proposes modelling the different natural resource rents including coal, oil, gas, mineral and forests with capital flight outlining how the resource extraction cause corruption and rent seeking leading to outflow of resident capital.

Design/methodology/approach

World Bank residual method is used for estimation of capital flight followed by dynamic common correlated effect (DCCE) approach developed by Chudik and Pesaran (2015) for empirical analysis. To ensure the reliability and robustness of results, this study constructs a Natural Resource Rent Index (NRRI) using principal component analysis (PCA) of various resource rents including coal, oil, gas, mineral and forests.

Findings

The econometric analysis reveals that natural resource rents significantly contribute to resident capital outflows from BRICS countries. Furthermore, this study finds that increased government involvement in resource extraction significantly reduces capital flight.

Practical implications

The findings of this study emphasize the necessity of proactive policy measures to mitigate capital flight from BRICS countries, particularly through enhanced government engagement in resource management.

Originality/value

This study fills literature gap by identifying how environmental factors fuel capital flight in BRICS economies.

Citation

Pathak, S., Pradhan, A.K. and Thomas, R. (2024), "Unravelling the natural resources and capital flight nexus: evidence from BRICS nations", Journal of Financial Regulation and Compliance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRC-07-2024-0132