Title

Capital flight from Southeast Asia: Case studies on Indonesia, Malaysia, the Philippines, and Thailand

Document Type

Article

Publication Date

2005

Abstract

This dissertation is an attempt at explaining and analyzing capital flight from Southeast Asia over the period 1970 to 2002. The research is organized into five questions. The first question is: What is capital flight? We review the literature on the meanings and measurements of capital flight. We define capital flight as the movement of capital from resource-scarce developing countries in order to avoid social control. The second question is: Was capital fleeing Southeast Asia? We employ a modified residual method to estimate capital flight. We measure capital flight as net unrecorded capital outflow, or the net of officially recorded capital inflows and recorded foreign exchange outflows. The third question is: Why was capital fleeing Southeast Asia? We examine direct and indirect linkages between capital flight and external borrowing, using a 'revolving door' model, and other exogenous variables. The fourth question is: Should Southeast Asia worry about capital flight? We deal with a counterfactual situation, using a planning method and a multiplier method: if there was no capital flight and the capital was utilized in productive domestic activities, how much additional output and employment would have been generated? The last question is: What is to be done to address capital flight? We discuss some policy guidelines to restrain, reduce, and reverse capital flight.

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