What is capital flight in economics?

  • A term that refers to an event where investors pull capital out of an economy on a large scale by selling the financial assets that they own.
  • Capital flight occurs when investors lose confidence in an economy for various reasons, and wish to protect the value of their investment.
  • In a world of freely moving capital, the sudden exit of capital can act as a force of discipline on bad economic policies by starving the economy of precious investment capital.
  • Capital flight can also be irrational, which provides opportunities for other investors to buy assets being sold rapidly at bargain prices.

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