The Financial Leash
Capital Flight, Debt, and the Mechanics of Peripheral Subordination
Emiliano López
Lucía Converti
In May 2018, the Argentine government received the largest loan in IMF history: $57 billion. In the three months that followed, the peso lost 40% of its value. The purchasing power of wages fell at a pace Argentine workers had not seen in over a decade. The investment funds that had placed capital in Argentina during the preceding carry-trade boom exited with extraordinary returns, capitalizing on the very crisis they had helped generate. The IMF arrived late, as always. But the financial markets arrived on time.
This is not a story about Argentine economic mismanagement. It is a story about how the global financial system works. The volatility of peripheral economies — that permanent instability that destroys the wages, savings, and life plans of millions across the Global South — is not a defect that international financial capital seeks to correct. It is one of its conditions of profitability. Global investors borrow cheaply in dollars and place that capital in peripheral currencies at much higher rates. The more unstable the currency, the higher the risk premium it justifies. The higher the premium, the greater the profit. From the perspective of central financial capital, a peripheral crisis is not a problem but an opportunity.
The first article in this series argued that dependency theory remains the indispensable framework for understanding the global economy from the standpoint of the three continents that produce the world’s wealth and retain the least of it (López and Barrera Insua, 2026). The second demonstrated, through the Baran Ratio, that Latin American bourgeoisies systematically divert the economic surplus away from productive investment: the subordinate Latin American periphery reinvests on average only 36% of its surplus in fixed capital, with Argentina at the floor at just 28%, less than half of what Germany reinvests (64%) and well below the United States itself (53%) (López, 2026). This article poses the next question: if the surplus is not directed toward productive accumulation, where does it go?
The answer has three destinations that dependency theory has typically studied. A fraction flows out as financial rent abroad (interest payments and repatriated profits, which we call Channel 2 here), another portion flees unrecorded toward financial centers of the core (Channel 3), and the largest share — more than 50% of the surplus in the subordinate periphery — dissipates internally in unproductive consumption and domestic financialization (Channel 4). But the financial leash does not only extract surplus: it also conditions accumulation at the national scale. Monetary subordination directly interferes with the prospects for accumulation within the national value spaces of the peripheral bourgeoisie itself. The mechanism behind this is the celebrated financial volatility. It is expressed in vertiginous cycles of sovereign bond prices, extreme variability of exchange rates and interest rates, and hyper-financialized commodity prices, among other dimensions. What matters is recognizing that this is not a side effect of Western financialized accumulation: it is, as Alan Greenspan himself suggested, the active condition that makes financial arbitrage profitable and provides artificial respiration to the US imperialist project.
The Post-1970 Transformation: From Productive to Financial Dependency
Classical dependency theory understood peripheral subordination primarily through the lens of unequal exchange in trade and the super-exploitation of labor: deteriorating terms of trade, primary commodity specialization, and the technological gap. These mechanisms continue to operate and, as we argued in previous articles, remain highly relevant. But something fundamental changed after the collapse of the Bretton Woods system in 1971 and, decisively, after the debt crisis of the 1980s.
The end of Bretton Woods unleashed a wave of financial deregulation that progressively subjected peripheral economies to a new form of discipline: that of super-liquid capital. From this moment on, foreign investment in Global South countries no longer entered primarily as direct productive investment, but as purchases of bonds or other securities that provided effective capital and swelled the external debt of peripheral countries, or as attempts to exploit exchange rate and interest rate gaps to generate short- and ultra-short-term financial loops. The recycling of OPEC petrodollars through Western banks — which flooded Latin American governments with dollar-denominated loans during the 1970s and 1980s — was one of the most visible examples.
When the Federal Reserve, under Paul Volcker, raised interest rates in 1979, those debts became unpayable overnight, triggering the “lost decade” and the structural adjustment programs that followed under IMF direction. What emerged from the rubble was not a return to productive accumulation, but a new regime: peripheral financialization that simultaneously drove the accelerated concentration, centralization, and foreign ownership of capital in the periphery. It is, in short, a system in which Global South economies are structurally oriented toward attracting and retaining volatile foreign capital through high interest rates, overvalued exchange rates, and fiscal austerity, rather than developing their own productive apparatus.
This is not a dysfunction of neoliberalism. This is how peripheral capitalism functions in the era opened in the 1970s. And it has a precise logic: for financial arbitrage to be profitable, the Global South must remain unstable. A peripheral economy with a stable currency, low interest rates, and full employment does not offer the yield differential needed to attract speculative capital. The financial leash not only holds down the Global South, but also requires our nations to remain in a state of permanent tension.
The Volatility Trap
Before examining the channels of surplus extraction, it is important to understand why volatility operates as an active mechanism rather than a system failure. This phenomenon is part of a self-reinforcing cycle: the peripheral economy attracts volatile foreign capital through high interest rates or currency volatility; this capital enters in booms and exits in crises; the exits trigger currency depreciation, recession, and further capital flight; the state responds by tightening monetary policy to attract capital back, which deepens the recession and sets the stage for the next cycle.
The numbers tell this story clearly. Argentina’s GDP volatility (standard deviation of growth) is 6.0%, more than double Brazil’s (2.7%). Argentina experiences recessions in 34% of the years in our sample — ten episodes between 1995 and 2023. Brazil in 10%. Chile, despite having the region’s largest capital flight, records only 3.5% GDP volatility: its Channel 3 operates more systematically and quietly, not only during crises.
The key structural point is this: volatility is not exogenous. It is not caused by “external shocks” affecting an otherwise healthy economy. It is endogenous to the dependent model of production and financialization. The integration of dependent economies into global financial markets — on terms set by core capital — produces the instability that justifies further liberalization, austerity, and subordination. Each crisis deepens the very structures that caused it.
What this cycle rarely names clearly is who wins. The same volatility that destroys workers’ purchasing power, erodes middle-class savings, and expels millions from the formal economy in each recession, that same volatility is precisely what makes carry-trade possible: investors borrow at zero rates in dollars, place in local currencies at 10-15% rates, and exit before depreciation erases the gains. Peripheral instability does not precede arbitrage: it is its consequence and its simultaneous condition.
Figure 1. The complete financial dependency circuit
Imperialist Rent in the Age of Finance
Samir Amin has argued that the global system extracts an “imperialist rent” from the periphery through unequal exchange, a systematic transfer of value arising from the wage differential between the core and the periphery. In a globally financialized economy, this rent has taken on a new and decisive form: financial arbitrage. Global investors borrow cheaply in dollars — at rates set by the Federal Reserve for core economies — and lend expensively in peripheral currencies, benefiting from interest rate differentials and exchange rate risk generated by the hierarchical global financial system itself. This is the global financial market functioning exactly as designed, pricing peripheral assets as “risky” precisely because the periphery occupies a subordinate position in the system, and then extracting a premium for that subordination.
Musthaq (2021) formalized this argument by updating Amin’s theory: the “new imperialist rent” in financialized capitalism is not limited to labor arbitrage — the wage differential between the core and the periphery — but also includes financial arbitrage. Peripheral currencies, lacking sufficient international liquidity to function as a global store of value, must pay a permanent premium to attract capital. This premium does not reflect genuine risk: it reflects a structural position in the monetary pyramid. Our data allow us to operationalize this argument across 67 countries. The correlation between the Currency Hierarchy Index (CH) and the Baran Ratio — the fraction of surplus that national bourgeoisies reinvest productively — is positive, with a value of 0.532, across 67 countries with complete data. A currency’s position in the international hierarchy not only determines how much financial rent flows out as interest and profits, but it also actively conditions how the local bourgeoisie uses the very surplus it appropriates.
The Currency Hierarchy is a composite index of four dimensions: the share of external debt denominated in domestic currency (the inverse of Eichengreen and Hausmann’s “original sin”), the currency’s weight in the IMF’s Special Drawing Rights basket, access to swap lines with the Federal Reserve and the European Central Bank, and participation in global foreign exchange reserves according to IMF COFER data. Its range runs from 0 (fully subordinate currency, with no international monetary power) to 1 (hegemonic currency). The results, in aggregate, confirm what dependency theory has long argued: the US dollar scores 0.875; eurozone currencies (including Germany) 0.709; Japan 0.582. Then comes an abyss. China, despite its productive, technological, and commercial weight in global supply chains, scores very low. It was only in October 2016 that the renminbi joined the IMF’s SDR basket with a weight of 10.9%. Before that date, China’s CH was practically zero: excluded from the SDR, without swap lines with the Fed or the ECB, and with 93% of its public debt denominated in foreign currency. Its entry into the SDR and growing participation in global reserves (2.7% in 2023) raise its CH to 0.29 in 2023, but China remains the only major economic power without access to permanent swap lines from core central banks — the mechanism that structurally distinguishes the dollar, euro, yen, and pound from everything else. Latin America’s major economies fall in the range of 0.166 to 0.011: Argentina at 0.020, Chile at 0.166, Brazil at 0.143, Mexico at 0.140, Colombia at 0.011, and Peru at 0.018. The difference between the dollar and the Peruvian sol is not a difference of degree but of structural position in a system designed to reproduce monetary subordination.
Monetary subordination produces extreme exchange rate volatility: the correlation between CH and exchange rate volatility is r = −0.361 (p < 0.01), confirming that instability is not exogenous to the system but structurally generated by monetary position. The EMBI+, built by JP Morgan, acts as a trigger that, at any sign of risk, provokes currency runs in the periphery, severely impacting macroeconomic stability.
Figure 2. The financial leash mechanism
Source: authors' elaboration based on World Bank and IMF data.
The peripheral state, far from resisting this logic, actively sustains it. Central banks maintain high interest rates to attract volatile capital and accumulate large quantities of dollar reserves — mostly US Treasury bills — on which they earn minimal returns, imposing enormous opportunity costs on the domestic economy. They conduct sterilization operations that generate debt on their own balance sheets. All of this is justified in the name of “financial stability” and “monetary credibility,” but in practice, it amounts to a new form of tribute to the core for the privilege of participating in a global financial market whose rules are written elsewhere.
Bona and Wainer (2025) have systematized these channels from the standpoint of Marxist dependency theory, tracing how financial subordination reinforces each phase of the dependent capital cycle: in the D phase, volatile capital enters seeking short-term gains; in the M phase, external indebtedness intensifies the super-exploitation of labor by compressing public spending and wages; in the D’ phase, profits are externalized or dissipated internally. Their empirical analysis reveals two varieties of subordinate financialization: Argentina, trapped by “original sin” (75% of its sovereign debt denominated in foreign currency) and deposit dollarization (27.9%); and Brazil, which overcame original sin but at the cost of guaranteeing real interest rates of +3.6% for a decade — the so-called “return of original sin” — constraining all redistributive policy through the macroeconomic tripod.
The CH index assigns precise coordinates to these two cases on the monetary pyramid. Argentina’s CH of 0.020 and Brazil’s of 0.143 mean that their effective financial dependency is amplified by an additional 49% and 43%, respectively, once their currencies' positions in the global monetary hierarchy are taken into account.
The Anatomy of the Surplus: Four Channels
To quantify the logic of financial dependency at a global scale, we construct a complete decomposition of the economic surplus for 67 countries over the period 1995–2023. The surplus flows to four distinct destinations.
The first is productive investment, which we call Channel 1. Gross fixed capital formation (machinery, infrastructure, equipment) is the only channel that reproduces and expands the productive base. As we showed in Where the Surplus Goes? (López, 2026), the Baran Ratio measures what share of capital-controlled surplus is reinvested in the productive cycle.
Channel 2 is the share directed to financial rent abroad: interest payments on external debt plus profits and dividends repatriated by foreign direct and portfolio investment. It is the rent that international financial capital extracts from the peripheral economy by virtue of its position as creditor and owner.
Channel 3 is capital flight/export: unrecorded flows estimated using the Balance of Payments residual method (Ndikumana and Boyce). For the periphery, these are outflows not reported as FDI or debt repayment — a defensive flight in the face of crisis. For the core, this concept represents net capital exports toward the periphery: the same capital that later generates the Channel 2 that the periphery repays.
Channel 4 is the unproductive domestic residual: what remains of the surplus after the previous three channels. It captures luxury consumption by dominant classes, domestic financialization (consumer credit, internal speculative rents), and surplus that simply never reaches investment. It is the “wasted potential surplus” that Paul Baran conceptualized.
Figure 3 shows a gradient that is not linear but structural: positions within the global system systematically produce distinct patterns of surplus use. The hegemonic core reinvests 57% of its surplus in productive capital. Non-hegemonic autonomy nations — China, Malaysia, for example — reinvest 61%, surpassing the core itself. The contested semi-periphery falls to 49%, while the subordinate periphery reinvests only 35%. Channel 4 follows the inverse pattern: 8% in the core, 23% in non-hegemonic autonomy, 38% in the semi-periphery, 53% in the periphery. More than half of the surplus generated by the Latin American peripheral bourgeoisie goes neither to productive investment nor to recorded financial transfers; it dissipates in the internal circuit of luxury consumption, domestic financial speculation, and real estate rent.
Figure 3. Anatomy of the economic surplus
Source: authors’ elaboration based on World Bank, Penn World Table, and IMF data.
This finding challenges conventional narratives of “underdevelopment” — a point we developed in our previous article (López, 2026). The subordinate periphery does not lack a surplus: it generates it in considerable quantities, with labor exploitation rates significantly higher than in the core. The problem is not scarcity but destination. Acemoglu and Robinson (2012), for example, would attribute this pattern to “extractive institutions” that discourage productive investment: low development of productive forces persists, they argue, because elites prefer institutions that allow rent extraction over wealth creation. But this explanation inverts the causality. Institutions are not the cause of peripheral financial subordination; they are a symptom of it. The global financial architecture makes not investing productively the rational decision given the system in which these classes operate. The peripheral bourgeoisie does not reinvest because it has no national development project. Its class insertion does not require developing the domestic market or expanding the productive apparatus. Financial assets and real estate in chronically inflationary economies offer far superior and safer returns than fixed capital, and that logic is perfectly coherent with a class that accumulates by integrating into global financial circuits as a junior partner of metropolitan capital. Channel 4 is not an institutional failure: it is the logical result of an economy organized — from outside and with a class structure inherited from colonialism — for something else entirely.
Figure 4 clearly shows that position in the monetary hierarchy — captured by the CH — correlates with Channel 4, with r = −0.697 (p < 0.001). This is not a direct or mechanical relationship. Low CH does not directly cause surplus dissipation: it conditions it through volatility. Subordinate currencies are structurally unstable; that instability shortens business planning horizons; short horizons make financial and speculative assets outperform productive investment in expected returns. Channel 4 is financial dependency manifesting itself in the everyday behavior of the peripheral bourgeoisie — not as conspiracy but as rational calculation in a system designed to produce exactly that result.
The concrete Channel 3 data confirm and refine this picture. Chile — the emblematic example of neoliberal success in Latin America — shows average capital flight of 9.1% of GDP over the period 1995–2023, the highest in the sample.¹ But what distinguishes Chile is not only the magnitude of flight: it is the combination with the highest profit repatriation rate (Channel 2 at 4.3% of GDP), reflecting the exceptional weight of foreign direct investment in mining. Chile’s total financial extraction — Channel 2 plus Channel 3 — exceeds 10% of GDP annually. Ecuador records 3.6%. Argentina averages 2.3% in flight, but with extreme GDP volatility (6.0%) and ten recession episodes in 29 years. Brazil loses 0.8% of GDP annually to capital flight.
Figure 4. The mechanics of Financial Dependency: transfers, monetary hierarchy, and surplus dissipation
Source: authors’ elaboration based on World Bank, Penn World Table, and IMF data.
Channel 2, in absolute terms, is equally revealing. Between 2015 and 2019, just seven Latin American economies — Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, and Peru — transferred abroad in financial rent (interest plus profits) an annual average of $124 billion: Brazil $47.7bn, Mexico $31.9bn, Argentina $15.4bn, Peru $9.8bn, Chile $9.2bn, Colombia $8.0bn, Ecuador $2.4bn. At the same time, the hegemonic core was receiving, net, $433 billion annually in financial rent from the rest of the world.
The pattern that Figure 5 makes visible is not simply “crisis equals flight.” It is a three-phase cycle that repeats with almost mechanical regularity. First, capital enters: international investors borrow in dollars at low interest rates and lend in peripheral currencies at high interest rates. In Argentina, this is legible in the blue zone of 2016–2018; in Chile, in the peaks of mining cycles; in Brazil, in the portfolio flows of the Lula era. Second, the cycle reverses: recession or sudden stop — often triggered by the accumulated weight of external debt or an external interest rate shock — produces massive exit. The shaded recession years and the peaks of the colored zone coincide with a synchrony that is not random: Argentina in 2001–2002 and 2020, Brazil in 2015–2016, Chile in 2009, Colombia, and Mexico in episodes of external volatility. Third, the cycle resets: when peripheral assets have cheapened sufficiently, capital re-enters — now buying at fire-sale prices what the crisis depreciated — and recaptures the return differential. The blue zone that follows each exit peak is not recovery: it is the beginning of the next extraction cycle. There is no anomaly in this pattern. There is a business sustained by the institutional architecture that enables it.
Figure 5. Capital flight cycles: six Latin American countries, 1995–2023
Source: authors’ elaboration based on World Bank, Penn World Table, and IMF data.
This dynamic is not exclusive to Latin America. Ndikumana and Boyce’s work on Africa reveals the same logic operating at an even more devastating scale. Between 1970 and 2015, thirty African countries lost an estimated $1.4 trillion in capital flight — rising to $1.8 trillion if imputed interest earnings are included — far exceeding the same countries’ external debt stock ($497 billion in 2015) and the $992 billion received in official development assistance over the same period. Africa does not lack resources: it is systematically dispossessed of them. Nigeria alone lost $340 billion. The accumulated capital flight from the Democratic Republic of Congo represents 706% of its GDP. These are the financial expression of the same comprador logic that the Baran Ratio captures in the productive sphere: a dominant class whose wealth does not depend on national economic development but on integrating into global financial circuits as a junior partner of metropolitan capital.
The Debt Trap and the IMF as Its Enforcer
Capital flight and external debt are two sides of the same coin — what Ndikumana and Boyce call the “revolving door” of peripheral finance. Countries borrow abroad at high interest rates, and the borrowed funds, rather than being used to finance productive development, facilitate capital flight by national and foreign elites. The debt stays; the capital leaves.
Our data confirm the structural nature of this dynamic. Between 1995 and 2023, external debt liabilities as a share of GDP grew steadily across Latin America: Chile rose from 19% to 61% of GDP, Ecuador from 34% to 69%, Colombia from 14% to 44%, Mexico from 23% to 34%, and Brazil from 11% to 19%. The contrast with states that subordinated financial flows to productive accumulation is stark: China kept its external debt between 8% and 15% of GDP over the same period; India between 16% and 19%.
The core, meanwhile, accumulated far higher external debt levels — France from 46% to 232%, the United Kingdom from 109% to 296%, the United States from 26% to 112% — without triggering the crisis dynamics that destroy peripheral economies at much lower thresholds. But this accelerated indebtedness should not be read as a sign of strength. As Arrighi argued, the turn to finance is the “autumn” of every hegemonic cycle: when the dominant power can no longer maintain its dominance through productive superiority, it resorts to financial expansion, borrowing against a future it can no longer guarantee.
The difference between core and peripheral debt is not only one of magnitude: it is qualitative and has deep historical roots. The same stock of external liabilities produces qualitatively worse effects in Lima than in Frankfurt because the Peruvian sol offers no refuge in a crisis while the euro can. That monetary asymmetry is not a technical accident — it is the contemporary form of a subordination that dates from colonization itself. The global financial architecture did not create peripheral dependency; it gave it a new institutional form. When Chile’s debt triples from 19% to 61% of GDP while 9.1% of its economy escapes annually as capital flight, this is not a “developing country catching up with global finance.” It is the final chapter of a history of dispossession that began with the silver mines of Potosí and the slave plantations of Bahia. The dollar replaced the pound, which replaced the Spanish real, but the direction of the transfer has never changed — only the mechanism: now automatic, mediated by interest rate differentials and credit ratings rather than gunboats and viceroys.
The IMF’s role in this cycle deserves to be stated plainly: it is the institutional guarantor of the dynamics we have described. All major IMF interventions in the periphery since the 1980s have followed the same template. Loans are extended under conditions of fiscal austerity, trade liberalization, capital account opening, and asset privatization. Capital account opening — presented as a technical condition of “financial modernization” — is in reality the sine qua non condition that keeps open the channel through which the rate differential becomes profitability for core financial capital: without open capital accounts, carry-trade does not work, volatile flows do not enter or exit, and the volatility that feeds them dissipates. The Fund not only executes the financial order: it reproduces it.
Argentina is the textbook case: the largest loan in IMF history ($57 billion, 2018), financed capital flight in real time; the dollars disbursed by the Fund were exiting the country through the financial account within months. The pattern is general: from the structural adjustment programs imposed on sub-Saharan Africa in the 1980s and 1990s — which coincided with the most intense periods of capital flight documented by Ndikumana and Boyce — to the conditionalities in Ecuador and the austerity regimes imposed on southern Europe after 2010, the Fund has systematically acted as the executor of a financial order that transfers resources from the periphery to the core, presenting that transfer as “stabilization.”
Closing the Circle
The three articles in this series now form a complete argument. Dependency theory provides the structural framework: peripheral economies are subordinated through a combination of productive, commercial, financial, technological, and network mechanisms that operate simultaneously. The Baran Ratio shows that peripheral bourgeoisies — especially in Latin America — systematically underinvest surplus value in productive capital: a regional average of 36%, and extreme cases like Argentina (28%) and Peru (33%) that express the comprador logic in its most developed form. And the four-channel decomposition shows with precision where the diverted surplus goes: between 4% and 6% as financial rent abroad [C2], around 6% as flight [C3], and 53% as unproductive domestic residual [C4].
The peripheral bourgeoisie does not invest productively in part because the return horizon of financial assets — enabled precisely by exchange rate instability and high interest rates — exceeds that of fixed capital investment. Core financial capital extracts rent precisely because that instability exists and reproduces itself. And the institutional architecture — from the IMF to the rating agencies that construct the EMBI+ — guarantees that it does. No one with real power over the system has incentives to stabilize it. Stability is not the equilibrium toward which peripheral financialized capitalism tends: it is precisely what dissolves its extraction mechanism.
Far from being a policy failure, this is a class strategy that operates through a financial architecture that rewards it. And it will not be reversed by “improving the business climate” or “attracting foreign investment.” It will only be reversed by the same political force that reversed it in East Asia: the capacity of national-popular movements to develop, from within and beyond state spheres, controls over capital, direct credit toward productive accumulation, and subordinate national and foreign capital to a sovereign development project.
In a world in crisis, where dollar hegemony is in retreat and new alternative financial architectures are emerging, the conditions for breaking the financial leash are more favorable than at any time since the 1970s. To cut the leashes, priorities must be inverted: the material living conditions of the peoples of the South cannot be resolved with what remains after payments abroad in the form of rents, interest, and flight. A sovereign development project must center on breaking the vicious circuits of global financial capital — and that requires disputing the institutional mechanisms that reproduce them.
Emiliano López is a researcher at CONICET-Universidad Nacional de La Plata and Chief Economist at the Tricontinental Institute for Social Research.
Lucía Converti is an economist from the Universidad de Buenos Aires and a researcher at the Tricontinental Institute for Social Research.
References
Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown Publishers, New York.
Amin, S. (1976). Unequal Development. Monthly Review Press.
Arrighi, G. (1994). The Long Twentieth Century. Verso.
Bona, L. & Wainer, A. (2025). La lógica financiera de la dependencia. Elementos teóricos y una breve aplicación para caracterizar los casos de Argentina y Brasil. Revista Economía, 77(126), 27–47.
Eichengreen, B. & Hausmann, R. (1999). Exchange rates and financial fragility. NBER Working Paper 7418.
Lane, P. R. & Milesi-Ferretti, G. M. (2007). The external wealth of nations mark II. Journal of International Economics, 73(2), 223–250.
López, E. (2026, March 19). Where Does the Surplus Go? Peripheral Bourgeoisies and the Politics of Disinvestment. Tricontinental Political Economy [Substack]. https://triconpoliticaleconomy.substack.com/p/where-does-the-surplus-go
López, E. & Barrera Insua, F. (2026, March 5). The Dependency Map and Mechanisms That Transcend National Borders. Tricontinental Political Economy [Substack]. https://triconpoliticaleconomy.substack.com/p/the-dependency-map-and-mechanisms
Musthaq, F. (2021). Dependency in a financialised global economy. Review of African Political Economy, 48(167), 15–31.
Ndikumana, L. & Boyce, J. K. (2018). Capital flight from Africa: updated methodology and new estimates. Political Economy Research Institute Working Paper 469. University of Massachusetts-Amherst.
Methodological Note
Data sources
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The CH index is the simple average of four normalized components: (1) share of public external debt in domestic currency — the inverse of Eichengreen and Hausmann’s “original sin” — drawn from World Bank International Debt Statistics for 46 countries; core countries are coded as fc_debt = 0 by definition, as they issue debt in their own currency; (2) currency weight in the IMF SDR basket; (3) access to permanent swap lines with the Federal Reserve or ECB; (4) share of global FX reserves (IMF COFER).
Coverage: 67 countries with complete data for all channels, 1995–2023. Guatemala is excluded from the Baran Ratio because of wage-share distortions from remittances (aprox. 10% of GDP). Ireland and the Netherlands are flagged as offshore financial centers where Channel 3 reflects capital re-export rather than flight.
Accounting identity: C1 + C2 + C3 + C4 = 100% of S in all observations, verified by arithmetic sum (standard deviation = 0.000).
¹ The 9.1% average corresponds to years with available BoP residual method estimates. The average, including years without estimates, is 6.2% of GDP. The difference reflects coverage limitations of the method, not actual zero flights in those years.
Excelente. Muchisimas gracias por esta investigación.