Abstract: This study examines the dynamic relationship between corruption and capital flight in Indonesia over the period from 2000 to 2022. Using a Vector Autoregression (VAR) framework, the research investigates the interactions among six important variables: Corruption Index, Capital Flight, Interest Rate, Exchange Rate, GDP Growth Rate, and Inflation Rate. In the model specification, corruption is positioned as the key driver of changes in the system, while capital flight serves as the primary transmission channel linking institutional weaknesses to financial instability and real sector outcomes. In the Indonesian context, weak institutional quality can trigger financial outflows, destabilize monetary conditions, and slow down real economic growth. The findings suggest that improving governance is essential not only for ethical governance but also for financial stability and long-term economic resilience. Stronger institutional frameworks could help mitigate the risks associated with capital flight and strengthen Indonesia’s external position.

Keywords: Capital Flight, Corruption Index, Granger Causality, Impulse Response Function, Political Instability, Vector Autoregression.

Title: The Causes and Consequences of Capital Flight in Indonesia: A VAR Model Approach

Author: Pranoto. Vincent, Biao. Gu

International Journal of Novel Research in Marketing Management and Economics

ISSN 2394-7322

Vol. 12, Issue 2, May 2025 - August 2025

Page No: 1-6

Novelty Journals

Website: www.noveltyjournals.com

Published Date: 19-May-2025