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.
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Famous quotes containing the words capital and/or flight:
“A good many have been thrown out on their broad capital bases.”
—John Dos Passos (1896–1970)
“Fear of error which everything recalls to me at every moment of the flight of my ideas, this mania for control, makes men prefer reason’s imagination to the imagination of the senses. And yet it is always the imagination alone which is at work.”
—Louis Aragon (1897–1982)