Capital Flight: A Response to Differences in Financial Risks

Empirical tests incorporating measures of capital flight from developing countries that are substantially different from those used in existing studies suggest that capital flight can be explained by differences in risk perceived by residents and nonresidents in holding claims on residents of the countries studied. To the extent that capital flight reflects differences among holders in expected yields on claims on residents of capital-flight countries, it may not be related to conventional determinants of net capital movements such as yield differentials between countries.