ABSTRACT

Given the difficulties in defining and estimating capital flight and the channels to which it moves, the large-scale exodus of private capital is often cited as one of the prime contributing factors to the external debt crisis of debtor nations (Glynn and Koening, 1984; Dooley, 1986; Decoodt, 1986; Khan and ul Haque, 1987; Guddington, 1986). A reversal of more than U.S. $100 billion of Latin American assets that have fled to industrial countries would make it possible to pay off most of the external debt of troubled debtor nations, since much of the debt was incurred to finance the outflow of private capital in the first place (Dornbush, 1987). According to some estimates, overall the debtor nations added $381.5 billion to the external foreign debt for the years 1978–1983. But approximately $103.1 billion of that amount flowed back out as flight capital or unidentified outflows, sapping local economies, draining central bank reserves, and forcing nations to default on their loans (Glynn and Koening, 1984).