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The capital flight \"problem.\"

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  • David B. Gordon
  • Ross Levine

Abstract

This paper isolates the common themes and policy recommendations found in the capital flight literature, and evaluates their statistical, conceptual, and empirical foundations. We find that there is no basis for presuming a stable link between any measure of capital flight and a nation's growth potential or ability to meet external obligations. Thus, although popular measures of capital flight are occasionally indicative of underlying economic and political problems, \"capital flight\" is not generally useful as a policy target or reliable as a signal of when to intensify or mitigate efforts for policy reforms. Moreover, policies proposed to reduce capital flight and repatriate flight capital may even stymie investment, slow growth, shrink the tax-base, and the lower the country's debt financing capacity.

Suggested Citation

  • David B. Gordon & Ross Levine, 1988. "The capital flight \"problem.\"," International Finance Discussion Papers 320, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:320
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    References listed on IDEAS

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    1. Dooley, Michael & Helkie, William & Tryon, Ralph & Underwood, John, 1986. "An analysis of external debt positions of eight developing countries through 1990," Journal of Development Economics, Elsevier, vol. 21(2), pages 283-318, May.
    2. Erbe, Susanne, 1985. "The flight of capital from developing countries," Intereconomics – Review of European Economic Policy (1966 - 1988), ZBW - Leibniz Information Centre for Economics, vol. 20(6), pages 268-275.
    3. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435, National Bureau of Economic Research, Inc.
    4. Alain Ize & Guillermo Ortiz, 1987. "Fiscal Rigidities, Public Debt, and Capital Flight," IMF Staff Papers, Palgrave Macmillan, vol. 34(2), pages 311-332, June.
    5. International Monetary Fund, 1990. "Risk and Capital Flight in Developing Countries," IMF Working Papers 1990/064, International Monetary Fund.
    6. Carlos F. Diaz-Alejandro, 1984. "Latin American Debt: I Don't Think We Are in Kansas Anymore," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 335-403.
    7. Eaton, Jonathan, 1987. "Public Debt Guarantees and Private Capital Flight," The World Bank Economic Review, World Bank, vol. 1(3), pages 377-395, May.
    8. Cuddington, John T., 1987. "Capital flight ," European Economic Review, Elsevier, vol. 31(1-2), pages 382-388.
    9. Daniel Gros, 1987. "The Effectiveness of Capital Controls: Implications for Monetary Autonomy in the Presence of Incomplete Market Separation," IMF Staff Papers, Palgrave Macmillan, vol. 34(4), pages 621-642, December.
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    Cited by:

    1. Edwin M. Truman, 1989. "U.S. policy on the problems of international debt," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 727-735.
    2. Eggerstedt, Harald & Hall, Rebecca Brideau & Van Wijnbergen, Sweder, 1995. "Measuring capital flight: A case study of Mexico," World Development, Elsevier, vol. 23(2), pages 211-232, February.
    3. Nathan Sheets, 1995. "Capital flight from the countries in transition: some theory and empirical evidence," International Finance Discussion Papers 514, Board of Governors of the Federal Reserve System (U.S.).

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    Keywords

    Capital movements; Developing countries;

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