Ülo Ennuste Economics

papers and articles in wordpress

Memo 16.X 16

Memo  16.X 16 (translated by Microsoft from Estonian)

In the Bank of Estonia (EP) Press Release in English 14.X 16 (available 17.X 16 10:26):


(The Estonian version:

http://www.eestipank.ee/press/augustis-oli-jooksevkonto-ulejaak-selle-aasta-suurim-14102016 )

one Excerpt is:

„The sum total of the current and capital accounts was 110 million euro in August. This means that the Estonian economy was a net lender to the rest of the world, so the country as a whole invested more resources abroad than it received from there.“

NB: Macro economically sounds very strange Statement/definition: it seems there is a postulate  involved “The sum total of the current and capital accounts” is regularly wholly invested abroad?

EP Press Release 13 X 16 gives the message that currently is staying in Estonia the IMF’s Delegation up to 24.X 16.

Good people – seriously – if you happen to come by chance to meet/contact the Delegation – then a deep request – that in the interest of the Estonian National Sustainability – pleas put a public question:

a) as far this statement in the essence may be macro economically correct (and not populist), and whether the amount of 110 million are at all compatible with the balance of payments financial account content?

b) as far as the Estonian economy is presently in the situation of genuine divergence trend in the EU28 context (see e.g.: Estonian Ministry of Finance Summer-Forecast Figure 1 – by the way – the balance of payment financial account forecast is missing); is currently on the hybrid-war sanctions and re-occupation  forefront  and in the Brexit risks; and in the situation of national labour force anomaly emigration, etc risk) – would the long-term policy of net lending to rest of the World be macro-economically rational at all (see also *)


*) Josef C. Brada, Ali M. Kutan and Goran Vukšić (2009) The Costs of Moving Money across Borders and the Volume of Capital Flight: The Case of Russia and Other CIS Countries.  EMG Working Paper Series, WP-EMG-28-2009.


„The residual method estimates capital flight indirectly, using balance of payment and international asset data. It weighs the country’s sources of funds, as given by the net increase in external debt and the net inflow of foreign investment against the uses of these funds as given by the current account deficit and the change in foreign reserves. If the recorded sources are greater than the recorded uses then there is capital flight from the country. Thus


Capital Flight = ΔED + NFI – CA – ΔR (Eq. 1)


where ΔED is the change in the stock of gross external debt, NFI is the net foreign investment inflow, CA is the current account deficit and ΔR is the change in the stock of official foreign reserves.“

NB: the Equation 1 is quoted to demonstrate the macro economically adequate Capital Flight definitions may be complicated (see also ***)


In this paper we have provided (sic! indirect, üe) estimates of capital flight for seven CIS (post-communist, üe) countries for the period 1995-2005. In four of these countries, Russia, Kazakhstan, Ukraine and Moldova capital flight is, when measured either in absolute amounts or relative to the size of the economy, a significant problem, siphoning off resources equivalent to a non-trivial share of GDP (in the case of  ex-CIS Estonia probably subverting by Russia the sustainability stability of the national economy – may be extremely significant – see e.g.:** – üe). Other countries in our sample, despite domestic political instability, or tenuous geopolitical situations, and highly economies that are subject to extensive government regulation have surprisingly low unrecorded outflows of capital, and some are even net recipients of unrecorded capital inflows. Our estimates of capital flight also suggest that it is a growing problem in the countries for which we are able to obtain estimates, and, thus, capital flight will continue to be a policy problem in these countries.

We also find that capital flight from these countries is driven by relatively basic economic forces, the persistence of differences between domestic and foreign returns. Liberalizing the external and financial sectors has a positive effect on capital flight by making it easier to move capital aboard. This facilitating effect appears to outweigh the effects of liberalization on reducing the gap between domestic and foreign returns on capital. Thus, in the CIS countries, in the short run, government repression and regulation rather than liberalization appear to be more effective in combating capital flight, at least in the short run.“


Ennuste, Ü. (2014) “Towards Special Methodological Problems of Macro-Optimal Sociocybernetic International Economic Sanctioning Coordination Modelling: Introductory Remarks on Preliminary Postulates and Conjectures” – Baltic Journal of European Studies Tallinn University of Technology (ISSN 2228-0588), Vol. 4, No. 2 (17), 150-158:



Ennuste, Ü. 2012.  “Waiting for the Commission Strengthened Governance Coordination Leviathans: Discourse Memo for the Actors in the Macro-Game “European Semester”- Baltic Journal of European Studies“ Vol 2, No 1, 2012 p 139-164:


***) Le, Quan Vu and Paul J. Zak (2006) “Political risk and capital flight” –  Journal of International Money and Finance, Vol. 25, No. 2, pp. 308-329.

Capital flight often amounts to a substantial proportion of GDP in developing countries. This paper
presents a portfolio choice model that relates capital flight to return differentials, risk aversion, and three
types of risk: economic risk, political instability, and policy variability. Estimating the equilibrium capital
flight equation for a panel of 45 developing countries over 16 years, all three types of risk have a statistically
significant impact on capital flight. Quantitatively, political instability is the most important factor
associated with capital flight. We also identify several political factors that reduce capital flight, ostensibly
by signaling that market-oriented reforms are imminent.
2005 Elsevier Ltd. All rights reserved.
JEL classification: F3; P16
Keywords: Capital flight; Economic risk; Political instability; Policy uncertainty; Portfolio choice.


October 16, 2016 - Posted by | Uncategorized

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