ABSTRACT
This chapter deals with the issue of distinction between normal flows and capital flight flows at both the conceptual and empirical level. The traditional definition of capital flight entails a one-way flow caused by political and economic uncertainty resulting in the achievement of a real transfer. A suitable definition of capital flight should then be able to explain, theoretically at least, two-way flows of capital in an unstable, uncertain environment and distinguish between normal and Bight induced outflows of capital. Inverse capital movements can be partly explained by the differences in anticipations and expectations of changes in the economic and political climate due to asymmetry in information available to foreign and domestic investors. Capital flight can be explained by differences in risks perceived by residents and non-residents in holding claims on residents of the countries studied. Gross capital outflows can be explained by the factors that motivate regular portfolio investments, transaction balances, and capital flight.
