Political Risk & Capital Flight - Case Study of the Ukrainian Crisis

Abstract

This paper examines the economic impact several events of political risk have on components of capital flight Ukraine and capital flight of Ukraine itself. The events of political risk are the Euromaidan revolution, the Russian annexation of Crimea and the war in the region of Donbass. By utilizing OLS regression techniques this paper estimates capital flight of Ukraine in relation to four economic variables that constitute the World Bank capital flight residual method (1985): changes to external debt, net foreign inflow, current account deficit and changes to reserve assets. The results show that the effect of the Euromaidan revolution, the annexation of the Crimean pen insula and the war in the region of Donbass had a significant reversal of capital flight.