MEASURING CAPITAL FLIGHT - A CASE-STUDY OF MEXICO

The authors show how various methods commonly used to measure capital flight produce vastly different estimates. Choosing an inadequate measurement concept can lead to distorted quantitative results. This paper argues in favor of the residual approach, which assumes that capital inflows in the form of increases in external indebtedness and foreign investment should finance either the current account or reserve accumulation; shortfalls in reported use can be attributed to capital flight. Several important adjustments, however, are required to avoid distortions. The paper includes a new set of capital flight estimates for Mexico.