Capital Flight

Extracted Attributes

• Types

  Legal capital flight (recorded, earnings return), Illegal capital flight (illicit financial flows, unrecorded, earnings do not return), Short-term speculative capital outflows ('hot money').

• Mechanism

  Can be executed by shifts in domestic portfolios toward foreign liquid assets or changes in trade credit.

• Definition

  The rapid flow of assets or money out of a country.

• Primary Causes

  Economic instability, political events (e.g., regime change, untrustworthy leadership), increased taxes on capital, government debt default, currency devaluation, shift in investor preferences, prospective tightening of capital controls, actual or incipient hyperinflation.

• Key Consequences

  Disappearance of wealth, sharp drop/depreciation/devaluation of currency, diminished purchasing power of citizens' assets, more expensive imports, loss of tax revenue, reduced economic strength, potential domino effect.

• Typical Occurrence

  Often happens to poorer nations, but can occur in others under specific conditions.

• Associated Economic Concepts

  Unrealized Gains Tax, Socialism, Government Spending as % of GDP, Free Market Economy.

Timeline

• Capital flight observed in India due to stringent currency controls, which reversed after economic liberalization in the 1990s. (Source: Investopedia)

  1970s-1980s

• Capital flight observed in Argentina due to major political and economic changes. (Source: Princeton PDF)

  1976

• Capital flight observed in Argentina due to major political and economic changes. (Source: Princeton PDF)

  1978

• Significant capital flight in Argentina due to major political and economic changes. (Source: Princeton PDF)

  1980-1982

• Noah Smith publishes an article titled 'This is called "capital flight"' discussing the phenomenon. (Source: Web Search Results)

  2025-04-12

• Discussion around a proposed 25% wealth tax in the United States, supported by Kamala Harris, which could trigger capital flight and create liquidity challenges for founders. (Source: Related Document)

  Ongoing

Capital flight

Capital flight, in economics, is the rapid flow of assets or money out of a country, due to an event of economic consequence or as the result of a political event such as regime change. Such events could be erratic or untrustworthy behavior by leadership, 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 in the economy and devaluation of their currency but 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 and acquire any form of foreign facilities, e.g. medical facilities.

Web Search Results

• Capital Flight: Definition, Causes, and Examples - Investopedia

  Capital flight is a large-scale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation, or the imposition of capital controls. Capital flight may be legal, as is the case when foreign investors repatriate capital back to their home country, or illegal, which occurs in economies with capital controls that restrict the transfer of assets out of the country. Capital flight can impose a severe burden on poorer nations since [...] ### Key Takeaways ## Understanding Capital Flight The term “capital flight” encompasses a number of situations. It can refer to an exodus of capital either from one nation, from an entire region, or a group of countries with similar fundamentals. It can be triggered by a country-specific event, or by a macroeconomic development that causes a large-scale shift in investor preferences. It can also be short-lived or carry on for decades. [...] Illegal capital flight generally takes place in nations that have strict capital and currency controls. For example, India’s capital flight amounted to billions of dollars in the 1970s and 1980s due to stringent currency controls. The country liberalized its economy in the 1990s, reversing this capital flight as foreign capital flooded into the resurgent economy.

• Capital Flight - Definitons, Impact, Causes, Prevention

  In economics, capital flight is a phenomenon characterized by large outflows of assets and/or capital from a country due to some events, resulting in negative economic consequences to that country. Additionally, the term can be referred to as the rapid withdrawal of assets and capital from certain regions or cities within a country. (Note that capital flight may include the withdrawal of both foreign and domestic capital). Image 2: Capital Flight ### Types of Capital Flight [...] Additionally, the flight of capital can be triggered by some macroeconomic factors such as exchange rate fluctuations. The devaluation of the domestic currency lowers investors’ confidence, causing them to withdraw their capital from a country. At the same time, the shift in investors’ preferences (e.g., from risky investments to safe investments) can also contribute to capital flight. This is especially common for developing countries that are generally distinguished by a high level of risk. [...] The sudden departure of large sums of money or assets is a detrimental event that triggers several negative consequences for the affected country. It reduces the strength of the economy – and of the government, as it means a loss of tax revenue. Additionally, rapid capital outflows reduce the purchasing power of citizens in the affected country, and major assets may be devalued. Finally, it can trigger a sort of domino effect if other people become panicked and start withdrawing their capital.

• [PDF] Capital Flight: Estimates, Issues, and Explanations

  The term "capital flight" typically refers to short-term speculative capital outflows. It involves "hot money" that responds to political or financial crises, heavier taxes, a prospective tightening of capital controls or major devalua-tion of the domestic currency, or actual or incipient hyperinflation. Short-term capital flight can be executed not only by shifts in domestic portfolios toward foreign liquid assets but also by changes in trade credit. In the face of large international [...] Argentina. Capital flight was an important phenomenon in Argentina in 1976, 1978, and particularly in the 1980-82 period. Because Argentina under-went a number of major political and economic changes during the 1970s, there were many causes of capital flight in those years. During the Peronist regime, which began in 1973 and was ended by a mil-itary coup in March 1976, there was a serious deterioration in fiscal discipline. [...] When the narrow "hot money" definition is used, capital flight typically re-fers to capital export by the private nonbank sector, although in some cases banks and official entities may also engage in it. Some authors define capital flight more broadly as the gross value of all capital exports from an economy, regardless of whether they reflect the purchase of foreign financial assets or real assets (such as real estate) or direct foreign investment by domestic resi-dents. Some would even

• Capital flight - Wikipedia

  Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be erratic or untrustworthy behavior by leadership, 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 [...] Capital flight may be legal or illegal under domestic law. Legal capital flight is recorded on the books of the entity or individual making the transfer, and earnings from interest, dividends, and realized capital gains normally return to the country of origin. Illegal capital flight, also known as illicit financial flows, is intended to disappear from any record in the country of origin and earnings on the stock of illegal capital flight outside of a country generally do not return to the [...] In the last quarter of the 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 the People's Republic of China).

• This is called "capital flight" - by Noah Smith

  Published Time: 2025-04-12T07:49:06+00:00 This is called "capital flight" - by Noah Smith =============== Image 1: Noahpinion Noahpinion ========================================== Subscribe Sign in #### Share this post Image 2 Image 3: Noahpinion Noahpinion This is called "capital flight" Copy link Facebook Email Notes More This is called "capital flight" =============================== ### It usually only happens to poor countries, and it never ends well. [...] It’s important to realize that this is not typical for a trade war. Usually, when you put up tariff barriers, your currency gets _stronger_, not weaker.1 That’s how it went when Trump put up tariffs against China in his first term. That’s not what’s happening now, though. What’s happening now is that a bunch of investors are selling large amounts of U.S. bonds and other assets: Image 8 [...] Usually, Treasury yields and the dollar move together, because usually, when investors look at U.S. government bonds, they don’t ask “How risky is this bond?” — instead, they only ask “How much money will this bond pay me?” When yields rise (because of Fed policy or economic conditions), investors buy more Treasuries in order to get those higher returns, and this buying drives up the dollar. When yields fall, investors sell, and the dollar goes down. So yields and the dollar move in the same