What is capital flight?

Abstract

World Bank (1999) distinguishes between capital outflows and capital flight by calling only a subset of the former transactions as 'capital flight'. Nevertheless, it does not give a definitive distinction between capital flight and capital outflow. Our purpose is to offer such a distinction and to clarify this concept. It is to also unify and synthesise the capital flight concept as used in both theoretical and empirical work and to show that various definitions have some basic common elements. Then, we suggest a method to measure this concept and apply this method to a developing country. The discussion in this paper is organised as follows. Section 2 develops the notion that capital flight is a subset of capital outflows from developing countries. In Section 3 we discuss that the outflows motivated by uncertainty about the future merit the appellation of capital flight. We then suggest an econometric method to measure it. We apply this method to the case of Korea in Section 4. Section 5 concludes and stresses why it is important to distinguish the capital flight concept.