Testing a Flow Model of Capital Flight in Five European Countries

This paper examines the problem of capital flight in Europe. The authors calculate the volume of capital flight experienced by five European countries--France, Greece, Italy, Portugal, and Spain--and discuss its importance. A model of the short-run determinants of capital flight is developed, which places particular emphasis on factors reflecting uncertainty, and is then tested.for the five countries. Political risk and expected depreciation were significant for all countries and, in addition, rates of return were significant in the case of Portugal and Spain. The authors conclude by discussing the implications of these results for the process of European integration.