An econometric investigation of capital flight

Abstract

This paper seeks to give a comprehensive empirical survey of private capital flight from developing countries. First, three alternative calcualtions of net private capital outflows are presented for 22 developing countries during 1978–85. It turns out that several of these countries had experienced major capital flight. Second, using an economtric model which

combines time series and cross-section data, a portfolio model is estimated in order to find some of the reasons for capital flight. Third, on quarterly time series capital flight from Mexico is determined in a time jseries model. This analysis gives further insight into the causes of capital flight. The overall result from both studies is that changes in the expected relative rate of return on assets between the foreign and domestic market are a major cause of capital flight.