What is Capital Flight?
Capital flight has to do with the movement of money away from domestic investments and bank accounts, and toward accounts and investment opportunities in other countries. Capital flight usually occurs for two different reasons, and may be a temporary strategy or a long-term approach to managing assets. One of the more common reasons for capital flight is the change of economic conditions within a country. When an economic trend appears to be settling in and making long term shifts that the investor does not consider desirable, he or she may choose to consider moving assets into a more stable investing environment. This strategy of money movement will ensure that the overall value of the investment portfolio at least has a good chance of maintaining the current worth, as well as possibly appreciating over time. Another reason for capital flight is a desire to diversify the type of investments that make up the financial portfolio. An investor may choose to divert resources that were prev
Abstract: This paper offers a definitive distinction between capital flight and capital outflows. It unifies and synthesises the capital flight concept as used in both theoretical and empirical work and shows that various definitions have two common elements. These are: (1) capital flight is a subset of capital outflows from developing countries by its residents; (2) these outflows must be motivated by risks and uncertainties that are peculiar to developing countries. The former points to the counter-intuitive nature of these outflows. The latter gives these counterintuitive outflows’ explanation. We then propose an econometric method to measure this concept, and illustrate its use by applying it to Korea.
Author InfoChander Kant Abstract This paper offers a definitive distinction between capital flight and capital outflows. It unifies and synthesises the capital flight concept as used in both theoretical and empirical work and shows that various definitions have two common elements. These are: (1) capital flight is a subset of capital outflows from developing countries by its residents; (2) these outflows must be motivated by risks and uncertainties that are peculiar to developing countries. The former points to the counter-intuitive nature of these outflows. The latter gives these counterintuitive outflows’ explanation. We then propose an econometric method to measure this concept, and illustrate its use by applying it to Korea. Copyright Blackwell Publishers Ltd 2002. Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of furth
Gerald Epstein: There are many different definitions, but they all point to one idea: capital flight occurs when rich people and government officials move financial assets out of a country in order to avoid actual or expected government interventions that could substantially reduce the value of their assets. It includes everything from carrying cash across the border in suitcases in order to avoid an expected increase in taxes, to lying about the amount of receipts gained from exporting products, and using the excess export earnings to buy a condo in Florida. In practice, it is difficult to measure because were often talking about illegal or underground money and asset flows. So we have to use an indirect measure to estimate capital flight. We use standard data to measure all the inflows of capital, and then use basic data to estimate all the legitimate recorded outflows. If there is a discrepancy a residual between these two measures what goes out minus what comes in we call that our
We review the literature on the meanings and measurements of capital flight. We define capital flight as the movement of capital from resource-scarce developing countries in order to avoid social control. The second question is: Was capital fleeing Southeast Asia? We employ a modified residual method to estimate capital flight. We measure capital flight as net unrecorded capital outflow, or the net of officially recorded capital inflows and recorded foreign exchange outflows. The third question is: Why was capital fleeing Southeast Asia? We examine direct and indirect linkages between capital flight and external borrowing, using a ‘revolving door’ model, and other exogenous variables. The fourth question is: Should Southeast Asia worry about capital flight? We deal with a counterfactual situation, using a planning method and a multiplier method: if there was no capital flight and the capital was utilized in productive domestic activities, how much additional output and employment would
