How Does Civil War Affect the Magnitude of Capital Flight? Evidence from Israel during the Intifada

We use time-series data from Israel to investigate the dynamics of the causal links between the intensity of civil conflict and capital flight. The fraction of Israeli capital wealth held outside the country exhibits considerable variation over time. So also do indicators of the intensity of the Palestinian-Israeli conflict. Using quarterly time-series data, the paper shows that there is a high correlation between the two, conditional on economic conditions. This correlation is a consequence of a causal link that runs in both directions: more violence leads to more capital flight, but more capital flight is also a predictor of higher future levels of violence.