- Capital flight
Capital flight, in
economics, occurs when assets and/or moneyrapidly flow out of a country, due to an economic event 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 wealthand is usually accompanied by a sharp drop in the exchange rateof the affected country ( depreciationin a variable exchange rate regime, or a forced devaluationin 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 powerof the country's assets and makes it increasingly expensive to importgoods.
In 1995, the
International Monetary Fund(IMF) estimated that capital flight amounted to roughly half of the outstanding foreign debt of the most heavily indebted countries of the world.
Capital flight was seen in some
Asian and Latin American markets in the 1990s. The Argentine economic crisisof 2001 was in part the result of massive capital flight, induced by fears that Argentina would default on its external debt(the situation was made worse by the fact that Argentina has an artificially low fixed exchange rateand was dependent on large levels of reserve currency). This was also seen in Venezuelain the early 1980s with one year's total export income leaving through illegal capital flight.
Capital flight is also sometimes used to refer to the removal of wealth and assets from a city or region within a country. Post-apartheid South African cities are probably the most visible example of this phenomenon.
Johannesburgin particular has been abandoned by business moving to northern suburbs. The flight of capital from central cities to the suburbs that ring them was also common throughout the second half of the twentieth century in the United States.
In the last quarter of 20th century capital flight was observed from countries that offer low or negative
real interest rate(like Russia and Argentina) to countries that offer higher real interest rate (like China).
A 2006 article in The
Washington Postgave several examples of private capital leaving Francein response to the country's wealth tax. The article also stated, "Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998." [http://www.washingtonpost.com/wp-dyn/content/article/2006/07/15/AR2006071501010.html]
Human capital flight(brain drain)
Cartel des gauches"
* French Popular Front (1936-38)
* [http://www.infoshop.org/rants/yu1.html Capital flight after revolution]
Anarchistview of capital flight
* [http://www.econlib.org/library/enc/CapitalFlight.html "Capital Flight"] from the Concise Encyclopedia of Economics
* [http://www.eurodad.org/debt/?id=2190 European Network on Debt and Development] reports, news and links on capital flight.
Wikimedia Foundation. 2010.