Abstract

This paper examines the relationship among capital flight, domestic investment and economic growth in the small resource based economy of Trinidad and Tobago. The study utilized capital flight estimates from previous work. A Vector Error Correction Model (VECM) combing short run and long run analysis is presented. The results confirm the a priori expectation that the financial haemorrhage of capital flight is a fundamental problem, which is affecting both the levels of domestic investment and economic growth. Therefore, a reduction of capital flight may provide a stimulus to the overall economy. These findings provide clear evidence of the harmful effects of capital outflows and provide support for the potential re-introduction of capital controls.

Key words: Capital flight, domestic investment, economic growth, Trinidad and Tobago.