Introduction

Traditionally capital flows between industrialized and developing countries were analyzed with the basic assumption that developing countries generally face scarcity of capital. Foreign capital flows into developing countries supplement domestic savings to finance desirable growth paths. True capital flight is defined as a one-way flow of capital out of a country, while intermediated capital flight is characterized as two-way flows of capital, both into as well as out of a country. If the domestic macroeconomic environment is unfavorable, then real capital flight will follow the intermediated capital flight. Given the complexity of the phenomenon, analysis and policies to control and eradicate the problem necessitate a clear understanding of the type of capital flows taking place. Given the existence of the capital flight phenomenon, it is evident that a demand for capital flight vehicles by investors transferring their capital abroad in search of lower risk, higher return, secrecy or safety must exist.