Capital flight and political risk

This paper provides the first serious attempt to examine the relationship between political risk and capital flight for a large set of developing countries. The outcomes of the analysis show that in most cases political risk variables do have a statistically robust relationship to capital flight once domestic and international macroeconomic circumstances are added, at least when the robustness test as proposed by Sala-i-Martin is applied. We conclude that on the basis of the analysis in this paper we have found support for the hypothesis that political risk leads to increased capital flight (C) 2000 Elsevier Science Ltd. All rights reserved.