Edited by Andrew W. Mullineux and Victor Murinde
18. Capital ﬂight: the key issues Niels Hermes, Robert Lensink and Victor Murinde 1 INTRODUCTION The issue of capital ﬂight has gained much attention in academic as well as policy circles since the early 1980s (see, for example, World Bank, 1985; Cuddington, 1986; Eaton, 1987; Deppler and Williamson, 1987; Dooley, 1988; Diwan, 1989; Mikkelsen, 1991; Hermes and Lensink, 1992; Claessens and Naudé, 1993; Murinde et al., 1996; and Lensink et al., 1998, 2000). Initially, research interest focused on Latin American economies, since the debt crisis that hit these countries stimulated massive outﬂows of capital.1 Capital ﬂight from Latin America, in general, appeared to be voluminous in absolute terms; the sheer volume posed a threat to the viability of the domestic banking system, national solvency and economic stability. In addition, the ﬂight of capital – the scarce resource in these economies – occurred at the same time that the countries were in desperate need of foreign exchange to amortize their outstanding debt to commercial banks in industrial countries. In the context of highly indebted countries coexisting with commercial banks ridden with bad loans, the capital ﬂight problem indirectly also threatened the stability of the international ﬁnancial system. From the end of the 1980s and early 1990s the debt crisis appeared to be contained and interest in the capital ﬂight phenomenon waned. However, capital ﬂight still remained a serious problem in a number of countries. In particular, several countries in Africa and Eastern Europe still experienced outﬂows. Yet, many countries in Asia...
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