The authors show how various methods commonly used to measure capital
flight produce vastly different estimates. Choosing an inadequate meas
urement 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 accumu
lation; shortfalls in reported use can be attributed to capital flight
. Several important adjustments, however, are required to avoid distor
tions. The paper includes a new set of capital flight estimates for Me
xico.