Capital flight - Definition and Overview

Seen in Asian markets in the 1990s capital flight is when assets and/or money rapidly flow out of a country. Usually what happens is that something happens in the economy that disturbs investors and causes them to lower their valuation of the assets in that country (a loss of confidence). This leads to a disappearance of wealth and is usually accompanied by a sharp drop in the exchange rate of the affected country. This fall is particularly damaging when the flight 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 a lot of their assets lost a lot of their nominal value. This coupled with the loss of the currency’s purchasing power leads to dramatic decreases in the purchasing power of the country’s assets and makes it increasingly expensive to import goods.

Further reading

• Economics
• Economic recession
• Human capital flight
• Inflation