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:
“Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”
—Abraham Lincoln (1809–1865)
“In all her products, Nature only develops her simplest germs. One would say that it was no great stretch of invention to create birds. The hawk which now takes his flight over the top of the wood was at first, perchance, only a leaf which fluttered in its aisles. From rustling leaves she came in the course of ages to the loftier flight and clear carol of the bird.”
—Henry David Thoreau (1817–1862)