Why capital was fleeing Southeast Asia? Evidence from Indonesia, Malaysia, Philippines, and Thailand

Abstract

The paper revisits the hypothesized direct linkages between two types of capital flows: external debt and capital flight. Do the linkages exist in the cases of Indonesia, Malaysia, the Philippines, and Thailand? The results indicate that, indeed, large sums of capital flowed in and out of these four countries in a revolving door manner. The implications of the results suggest the need for enhanced domestic management and international coordination in capital flows (i.e., external debt and capital flight) and the importance of sound domestic macroeconomic management and solid macro-organizational foundations. Finally, the results lend support to the case for challenging the legitimacy of a substantial portion of these countries´ external borrowings and the rationale for continuing to service such debts.