Capital Flight from a Small Developing Asia Pacific Economy

Abstract

Capital flight from a small developing country in the Asia Pacific region, Fiji, is estimated using a variant of the residual approach. The findings show that between 1991 and 2009, approximately US$5 billion, averaging some US$265 million per annum has leaked out of Fiji in the form of capital flight. On an annual average basis, this has translated into 12 percent of Fiji’s gross domestic product; 19 percent of imports bills and 17 percent of lost tax revenues. The implications of this finding is that Fiji’s policymakers need to institute policies that focus on long-term secure and stable business and political environment. Some of these may include making the domestic business and investment environment more attractive, reforming the foreign investment tax incentives, retaining qualified and skilled people, eliminating institutional weaknesses in banking systems, and effective enforcement of banking and customs regulations relating to transfers of financial capital.