Private foreign asset accumulation,not just capital flight: Evidence from the Philippines

External debt problems have been accompanied in many developing countries with large private capital outflows. The latter phenomenon is usually identified in the literature as ‘capital flight’. This article argues that private foreign asset accumulation is a more appropriate term and compares a great variety of definitions and measurement methods and applies these to Philippine data for 1971–88. Outcomes show striking differences in assessment of the magnitude of the phenomenon. In the preferred definition of this study applied to the Philippines, unrecorded workers remittances from abroad, a factor omitted in other studies, represent a major source of foreign exchange earnings which indirectly support private foreign asset accumulation. Other definitions appear to severely underestimate private capital outflows. Econometric evidence on the causes of private foreign asset acquisition shows a strong sensitivity to the applied definition. Regression analysis for six alternative definitions shows that the expected real exchange rate depreciation and the real foreign‐domestic interest rate differential are ‐ in line with portfolio theory ‐ important determinants in the case of nearly all alternative measures, except for those that attempt to define a narrow ‘capital flight’ concept. Other determinants found significant are the availability of external finance and the previous year stock of private foreign assets. Debt‐fuelled private capital outflows are associated with the political economy of public external borrowing and the segmented nature of the foreign exchange market in the Philippines. Stock‐adjustment behaviour in the acquisition of private foreign assets in turn is interpreted as being a result of a simultaneous decision‐making process determining consumption demand and portfolio choice of high‐income Philippine households to satisfy demands related to their international lifestyles. These results have important welfare implications and policy consequences.