Capital flight often amounts to a substantial proportion of GDP when developing countries face crises. This paper presents a portfolio choice model that relates capital flight to rate of return differentials, risk aversion, and three types of risk: financial risk, political risk, and policy risk. Estimating the equilibrium capital flight equation for a panel of 47 developing countries over 16 years, we show that all three types of risk have a statistically significant impact on capital flight. Quantitatively, political risk is the most important factor causing capital flight. We also identify several political factors that reduce capital flight by signaling market-oriented reforms are imminent.
Download Info
To 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 further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Find related papers by JEL classification: F3 - International Economics - - International Finance P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Lensink, Robert & Hermes, Niels & Murinde, Victor, 1998.
"Capital flight and political risk,"
Research Report
98C34, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
[Downloadable!]
Other versions: