Modelling the determinants of capital flows and capital flight: With an application to South African data from 1960 to 1995

This paper examines the relative sensitivity of four alternative measures of capital flows or flight to their determinants. We find that all capital flow measures prove to be sensitive to a range of uncertainty measures, as well as to standard measures of the rate of return on assets. While there is evidence to suggest that one of the capital flight measures is more sensitive to risk measures than capital flows as reported in the balance of payments, this is not true of all flight measures. The policy implications in favour of a stable and transparent policy environment as a means of attracting capital flows is thus invariant between balance of payments and alternative capital flight measures.