WAGES, PROFITS AND CAPITAL FLIGHT*

Andrés Velasco and Aarón Tornell

Economics and Politics, 1991, vol. 3, issue 3, 219-237

Abstract: We model capital flight as the outcome of a non‐cooperative differential game between workers (who control the wage share) and capitalists (who control investment at home and abroad). There are three equilibria for such a game. Along the interior equilibrium, the domestic economy becomes “decapitalized” as investors build up their holdings of foreign assets, in a situation reminiscent of the experience of several developing countries.

Date: 1991
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