Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence. Such events could be an increase in taxes on capital or capital holders or the government of the country defaulting on its debt that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic strength.
This leads to a disappearance of wealth, and is usually accompanied by a sharp drop in the exchange rate of the affected country - depreciation in a variable exchange rate regime, or a forced devaluation in a fixed exchange rate regime.
This fall is particularly damaging when the capital belongs to the people of the affected country, because not only are the citizens now burdened by the loss of faith in the economy and devaluation of their currency, but probably also their assets have lost much of their nominal value. This leads to dramatic decreases in the purchasing power of the country's assets and makes it increasingly expensive to import goods.
Read more about Capital Flight: Recent Examples
Famous quotes containing the words capital and/or flight:
“There exists, between people in love, a kind of capital held by each. This is not just a stock of affects or pleasure, but also the possibility of playing double or quits with the share you hold in the other’s heart.”
—Jean Baudrillard (b. 1929)
“It is marvelous indeed to watch on television the rings of Saturn close; and to speculate on what we may yet find at galaxy’s edge. But in the process, we have lost the human element; not to mention the high hope of those quaint days when flight would create “one world.” Instead of one world, we have “star wars,” and a future in which dumb dented human toys will drift mindlessly about the cosmos long after our small planet’s dead.”
—Gore Vidal (b. 1925)