Capital flight is a phenomenon which, though unobservable, is assumed to be widely prevalent in developing countries. While this is probably true the approaches proposed by economists to quantify it may not necessarily capture what we seek to measure: namely the flight of capital as a response to economic and political instability. Each method differs conceptually as to what defines capital flight based on distinctions between ‘normal flows’ and ‘capital flight’, ‘short term’ and ‘long term’ and between ‘legal’ and ‘illegal transactions’. Consequently estimates of capital flight vary. This paper makes a critical evaluation of estimation methods used in the literature and applies them to a sample of 116 countries for the period 1971–98. The paper makes the case that the most widely prevalent measure of capital flight can at best be treated as a resident capital flow, which captures not only capital flight, but other influences as well.
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