The Determinants of Capital Flight: An Overview of the Problem

Abstract

The phenomenon of capital flight often accompanied by exact figures is widely discussed in the media, mentioned in the speeches of political figures. However there is no direct indicator of capital flight in the Russian official statistics and the use of the term in economic literature varies, resulting in instability of financial flows constituted the phenomenon. The problem of ca­pital flight, in general, characterized by the uncertainty at all stages of the analysis. In addition to the lack of a common terminology, there is no generally accepted definition and an appropriate quantitative indicator. The views of the researches on the place of capital flight within the frame­work of economic relationships, its factors and forms of capital flight, the effectiveness of policies aimed at preventing and reducing undesired financial flows depends on the specifics of a particular economy and the time period considered.This article addresses the issues of capital flight determinants, it provides a review of publications on relevant topics of both Russian and foreign researches. It clarifies the theoretical and conceptual framework of the phenomenon in order to define its limits. In particular it exami­nes the issues of terminology adopted in the Russian-language economic literature, discusses the issues of «flying» financial flows detection and proposes the definition of capital flight taking into account the undesirable consequences of the process nature. The theoretical basis of the problem is represented by studies defining the investment climate as the key root case of the capital flight, as well as publications linking the capital flight with the existence of asymmetries in the investment risks of residents and non-residents the institutional development problems. The review of applied studies reveals the issues of choosing proper macroeconomic indicators in capital flight models for emerging countries in Latin America, Latin America, Africa and Eastern Europe, as well as for developed economies in Asia and Eurozone.