How successfully do we measure capital flight? The empirical evidence from five developing countries

Abstract

Economists have proposed several different techniques for measuring capital flight. Each technique differs significantly in its definition of what constitutes capital flight, principally on the limits to normal capital flows, how to capitalise investment income, and the inclusion of long term capital flight. Consequently estimates of the determinants and remedies for capital flight have been very mixed. Given that capital flight is not observable it is important to examine the information content and consistency between the different measures. This article uses three different techniques over five countries to make that comparison, and finds a limited amount of information in each measure but no obvious agreement between them. Econometric techniques which have been designed for measuring the ‘hidden economy’ of OECD countries is likely to offer a better way of measuring capital flight.

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