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Capital Flight, External Debt and Domestic Policies

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  • Michael P. Dooley
  • Kenneth M. Kletzer

Abstract

It is now well documented that capital flight has been a dominant feature of capital movements between developing and industrial countries. Since 1988 reductions in the stock of flight capital more than account for private capital flows to emerging markets. This suggests that what appears to be a diversification of portfolios of residents of developed countries may be a restoration of 'home bias' in the portfolios of residents of developing countries. We show that changes in the stock of capital flight can increase or decrease welfare depending on the structure of distortionary taxes and subsidies on capital income and the effects of capital flight on the tax base.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4793.

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Date of creation: Jul 1994
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Publication status: published as Economic Review, Federal Reserve Bank of San Francisco, Number 3, 1994, pp. 29-37.
Handle: RePEc:nbr:nberwo:4793

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  1. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," UCLA Economics Working Papers 538, UCLA Department of Economics.
  2. 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.
  3. Gooptu, Sudarshan, 1993. "Portfolio investment flows to emerging markets," Policy Research Working Paper Series 1117, The World Bank.
  4. Jonathan Eaton, 1987. "Public Debt Guarantees and Private Capital Flight," NBER Working Papers 2172, National Bureau of Economic Research, Inc.
  5. Etro, Federico & Ageloni, Ignazio & Alesina, Alberto, 2005. "International Unions," Scholarly Articles 4553008, Harvard University Department of Economics.
  6. Assaf Razin & Efraim Sadka, 1989. "Optimal Incentives to Domestic Investment in the Presence of Capital Flight," NBER Working Papers 3080, National Bureau of Economic Research, Inc.
  7. Michael P. Dooley, 1988. "Capital Flight: A Response to Differences in Financial Risks," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 422-436, September.
  8. Claessens, Stijn & Naude, David, 1993. "Recent estimates of capital flight," Policy Research Working Paper Series 1186, The World Bank.
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Cited by:
  1. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development 59, Boston University, Institute for Economic Development.
  2. Andrew Powell & Dilip Ratha & Sanket Mohapatra, 2002. "Capital Inflows and Capital Outflows: Measurement, Determinants, Consequences," Business School Working Papers veinticinco, Universidad Torcuato Di Tella.
  3. Joshua Aizenman & Ilan Noy, 2003. "Endogenous Financial Openness: Efficiency and Political Economy Considerations," NBER Working Papers 10144, National Bureau of Economic Research, Inc.
  4. Fofack, Hippolyte, 2009. "Causality between external debt and capital flight in Sub-Saharan Africa," Policy Research Working Paper Series 5042, The World Bank.
  5. Alexander Cobham, . "Capital Account Liberalisation and Poverty," QEH Working Papers qehwps70, Queen Elizabeth House, University of Oxford.
  6. Joseph Joyce & Linda Kamas, 1997. "The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(3), pages 458-478, September.
  7. Hermes, Niels & Lensink, Robert & Murinde, Victor, 2002. "Flight Capital and its Reversal for Development Financing," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. Valerie Cerra & Meenakshi Rishi & Sweta Saxena, 2008. "Robbing the Riches: Capital Flight, Institutions and Debt," Journal of Development Studies, Taylor & Francis Journals, vol. 44(8), pages 1190-1213.
  9. Alejandro Diaz-Bautista & Cesar Alfredo Olivas Andrade, 2005. "Un Análisis de cointegración con corrección de errores de las Fugas de Capital y la Inestabilidad Política en México , An econometric model of capital flight in Mexico," International Finance 0511004, EconWPA.
  10. Brada, Josef C. & Kutan, Ali M. & Vukšić, Goran, 2013. "Capital Flight in the Presence of Domestic Borrowing: Evidence from Eastern European Economies," World Development, Elsevier, vol. 51(C), pages 32-46.
  11. Joshua Aizenman & Ilan Noy, 2004. "Endogenous Financial and Trade Openness: Efficiency and Political Economy Considerations," Working Papers 200404, University of Hawaii at Manoa, Department of Economics.
  12. Collier, Paul & Hoeffler, Anke & Pattillo, Catherine, 1999. "Flight capital as a portfolio choice," Policy Research Working Paper Series 2066, The World Bank.
  13. Joshua Aizenman & Ilan Noy, 2009. "Endogenous Financial and Trade Openness," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 175-189, 05.
  14. Lisa M. Schineller, 1997. "An econometric model of capital flight from developing countries," International Finance Discussion Papers 579, Board of Governors of the Federal Reserve System (U.S.).
  15. Goldstein, Morris, 1995. "Coping with too much of a good thing : policy responses for large capital inflows in developing countries," Policy Research Working Paper Series 1507, The World Bank.
  16. Josef Brada & Ali Kutan & Goran Vukšić, 2011. "The costs of moving money across borders and the volume of capital flight: the case of Russia and other CIS countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(4), pages 717-744, November.
  17. Marcella Mulino, 2002. "On the determinants of capital flight from Russia," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(2), pages 148-169, June.
  18. 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.).
  19. Sweta Chaman Saxena & Meenakshi Rishi & Valerie Cerra, 2005. "Robbing the Riches," IMF Working Papers 05/199, International Monetary Fund.
  20. Melike Altinkemer, 1996. "Capital Flows : The Turkish Case," Discussion Papers 9601, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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