On the determinants of capital flight : a new approach

This paper seeks to contribute to the literature on capital flight determinants by employing a new approach to the estimation of capital flight equations over four different measures of capital flight for Malaysian time-series data during the period 1970-96. It improves upon earlier work in the area by employing, for the first time in the relevant empirical literature, relatively recent developments associated with modern time-series analysis, such as cointegration, within the context of a general-to-specific econometric methodology. Empirical findings obtained seem to suggest the importance of macroeconomic fundamentals in the flight process. The results of econometric analysis reveal the existence of a long-run relationship between capital flight, as variously defined (Dooley's, World Bank's, Private Claim and Balance of Payments measures) on the one hand and exchange rate movements, changes in external debt, real GDP growth and foreign direct investment activities, on the other. (J Asia Pacific Econ/DÜI)