ABSTRACT
This chapter assesses procedures adopted in estimating the magnitude of the problem in terms of the definition used, the assumptions involved, the nature of the capital flight amount captured and their sensitivity to the data utilised. It focuses on two conceptually different estimating procedures. The first procedure, based on the national utility concept of capital flight is a broad measure which treats all outflows of capital as capital flight. The second procedure distinguishes capital flight from normal capital outflows in response to asymmetric risk. The external debt of many developing countries may be underreported, thus the capital accounts themselves might prove to be poor indicators of gross capital outflows and inflows. The net errors and omissions in balance of payments reflect the difference between the credit and debit entries of the and capital account. The method for estimating the magnitude of capital flight suggests that when residents acquire financial claims outside their home country, domestic real investment is constrained.
