Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94628
Authors: 
Le, Quan
Zak, Paul J.
Year of Publication: 
2001
Series/Report no.: 
Claremont Colleges Working Papers in Economics 2001-10
Abstract: 
Capital flight often amounts to a substantial proportion of GDP when developing countries face crises. This paper presents a portfolio choice model that relates capital flight to rate of return differentials, risk aversion, and three types of risk: financial risk, political risk, and policy risk. Estimating the equilibrium capital flight equation for a panel of 47 developing countries over 16 years, we show that all three types of risk have a statistically significant impact on capital flight. Quantitatively, political risk is the most important factor causing capital flight. We also identify several political factors that reduce capital flight by signaling market-oriented reforms are imminent.
Subjects: 
capital flight
political risk
policy risk
portfolio choice
JEL: 
F3
P16
Document Type: 
Working Paper

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