Flight Capital as a Portfolio Choice

An Analytical Framework

This paper sets flight capital in the context of portfolio choice, focusing upon the proportion of private wealth that is held abroad. There are large regional differences in this proportion, ranging from 5 percent in South Asia to 40 percent in Africa. We explain cross-country differences in portfolio choice by variables that proxy differences in the risk-adjusted rate of return on capital. We apply the results to four policy questions: how the East Asian crisis affected domestic capital outflows; herd effects; the effect of the IMF-World Bank debt relief initiative for heavily-indebted poor countries (HIPC) on capital repatriation; and why so much of Africa's private wealth is held outside the continent.
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Volume/Issue: Volume 1999 Issue 171
Publication date: December 1999
ISBN: 9781451858488
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Topics covered in this book

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Business and Economics , Exports and Imports , WP , institutional investor , risk rating , increases in capital capital flight , capital flight literature , rate of return , Capital flight , portfolio choice , capital flight share , cline capital flight measure , flight capital , Capital outflows , Stocks , Foreign assets , Real exchange rates , East Asia , Africa , Sub-Saharan Africa , South Asia , Middle East

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Summary

This paper sets flight capital in the context of portfolio choice, focusing upon the proportion of private wealth that is held abroad. There are large regional differences in this proportion, ranging from 5 percent in South Asia to 40 percent in Africa. We explain cross-country differences in portfolio choice by variables that proxy differences in the risk-adjusted rate of return on capital. We apply the results to four policy questions: how the East Asian crisis affected domestic capital outflows; herd effects; the effect of the IMF-World Bank debt relief initiative for heavily-indebted poor countries (HIPC) on capital repatriation; and why so much of Africa’s private wealth is held outside the continent.

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