Capital Flight
Capital flight refers to the large-scale exit of financial assets and capital from a country due to economic or political instability. This can lead to a decrease in investment and economic growth within the country experiencing the flight. It often occurs when investors lose confidence in the domestic economy and seek more stable and profitable opportunities abroad.
4 Key excerpts on "Capital Flight"
eBook - ePubManaging Country Risk in an Age of Globalization
A Practical Guide to Overcoming Challenges in a Complex World
- Michel Henry Bouchet, Charles A. Fishkin, Amaury Goguel(Authors)
- 2018(Publication Date)
- Palgrave Macmillan(Publisher)
...As such, Capital Flight is a manifestation of misguided economic policies, including mismanagement of interest and exchange rates, excessive tax burden, inflation, budget deficits, and an excessive public sector borrowing requirement resulting in crowding out the private sector’s access to financing. Until the mid-1990s, the main focus of the root causes of Capital Flight was restricted to macroeconomic mismanagement, including the risk of losses in the real value of domestic assets resulting from inflation or exchange rate devaluations. Consequently, sound macroeconomic policies complemented with appropriate structural reforms were expected to be key elements in stemming or reversing Capital Flight since only those policies could decrease the risks associated with holding domestic assets (Rojas-Suarez 1990). Throughout the 1990s, it became more and more evident that bad governance was also a major ingredient in triggering private capital outflows, thereby contributing to financial crises. Though developing countries have no monopoly on Capital Flight, it makes financial crises more severe in these countries due to a higher volatility of capital flows and more limited market access. Finally, Capital Flight raises doubt about the usefulness of official development aid flows. Bilateral and multilateral agencies have expressed growing concern about the recycling of a large portion of official development aid that flows right back out in the form of Capital Flight. As Roubini and Setser note (2004, 16): “A country that is not running a current account deficit and has little maturing external debt—and thus little need to borrow from abroad—can still get in trouble if its citizens want to shift their savings abroad. Depositors in the banking system can decide to pull their funds out of the local banks and deposit them abroad. The depositors need foreign currency to purchase foreign assets...
eBook - ePubDistorted Development
Mexico In The World Economy
- David Barkin(Author)
- 2019(Publication Date)
- Routledge(Publisher)
...4 Smuggling; Capital Flight; and Development Finance In Mexico, as in many countries in the third world, Capital Flight continues unabated. It is a tangible way for the wealthy to demonstrate their lack of satisfaction with the existing state of affairs. As external pressures on the economy increase and confidence in the ability of national authorities to manage the domestic economy declines, it is predictable that both individual and corporate investors would seek to protect themselves from domestic chaos by transferring their wealth to safer havens. Even when they are interested in investing in their own countries, many wealthy people find that they can improve the conditions for their investments by investing as foreigners. What is Capital Flight and why is it important? Capital Flight is the departure from a given country of investable resources. Under normal circumstances this might simply be called foreign investment, but in the developing world, where one of the main imperatives for economic progress is further investment, any attempt to reduce investable resources must be understood as a vote of no-confidence in the economic future of the country. Thus, the massive exodus of capital contributes to a country’s inability to broaden and modernize its productive apparatus. As I shall argue at the end of this chapter, Capital Flight not only undermines a country’s ability to grow, but, perhaps even more insidious, it also contributes to a misunderstanding of the country’s economic potential. The flight of capital is a response by wealthy people to their discomfort with the prevailing economic environment. In practice, it is both a symptom and a weapon of class conflict. As a symptom, it is a vivid measure of an unwillingness to strengthen the economy through investment and the import of necessary goods and services; as a weapon, it represents a denial of resources for further growth...
eBook - ePubIssues and Challenges in the Malaysian Economy
Towards Inclusive Growth
- Mohd Fahmee Ab Hamid, Umar Abdul Basar, Rozilee Asid, Wan Farisan Wan Sulaiman, Elya Nabila Abdul Bahri, Nor Fatimah Che Sulaiman, Norlee Ramli(Authors)
- 2019(Publication Date)
- Emerald Publishing Limited(Publisher)
...Moreover, Capital Flight is also known as unreported or unrecorded capital outflows which are not legal and often occur (Lan, Wu, & Zhang, 2010). Cheung and Qian (2010) explain Capital Flight is an outflow of capital abroad to avoid any official law of the country. Since Capital Flight is defined differently among economy researchers with each theories (Ljungwall & Zijian, 2008), various and different methods of measuring Capital Flight have been produced (Yalta & Yalta, 2012). Cumby and Levich (1987) divide the measurement of Capital Flight into two categories: The measurements that do not distinguish between normal capital outflows and Capital Flight but try to measure the net foreign asset acquisition or private sector claims such as World Bank Residual Approach (1985). The measurement that distinguishes between normal capital outflows and Capital Flight such as hot money approach (Cuddington, 1986), miss-invoicing approach (Gulati, 1987) and Dooley (1986) measurement. Cumby and Levich (1987) claims that the differences of Capital Flight definition can be reduced when nationalism aspect is taken into account. Consequently, those capitals can be utilised in carrying out economic activities, and the outflows of the capitals will give negative impact on national utility. Undoubtedly, Capital Flight is a factor in the failure to reduce poverty (Dim & dan Ezenekwe, 2014). Countries that experienced Capital Flight require a much more specific plan and policy to reduce the Capital Flight in the future. As described, reducing the rate of Capital Flight will boost the country's economy as a whole (Salandy & Henry, 2017). 3.3 Inclusivity of Human Capital The main goal of human capital development is promoting the welfare of the country's population which is one of the important qualitative components to enhance economic development (Ajayi, 2014). Development of human capital in general is an important factor in the economic growth of a country (Ang, Madsen, & Islam, 2011)...
eBook - ePubFinancial Stability and Central Banks
A Global Perspective
- Richard Brearley, Juliette Healey, Peter J N Sinclair, Charles Goodhart, David T. Llewellyn, Chang Shu, Richard Brearley, Juliette Healey, Peter J N Sinclair, Charles Goodhart, David T. Llewellyn, Chang Shu(Authors)
- 2001(Publication Date)
- Routledge(Publisher)
...This can only lead to positive feedback on the capital account of the balance of payments. Domestic and foreign actors scramble to transfer still more funds abroad, unless the exchange rate collapses so far that all market participants agree that it can hardly drop any further. In sum, international capital outflows can be highly disruptive to both monetary and financial stability. The central bank has to opt between the macroeconomic downturn frequently induced by a successful defence of the exchange rate, on the one hand, and the perils of a burst of inflation, possibly exacerbated by solvency problems, when it acquiesces in an exchange rate slide on the other. Neither prospect entices. Small wonder, then, that the case for taxing, restricting or discouraging international capital movements is often viewed sympathetically by the central banking community. The sheer scale of international capital movements in contemporary conditions is bewildering; and, following widespread liberalization, they appear to be growing much faster than central banks’ foreign exchange reserves. Given the undoubted and increasingly serious threats they imply for financial and monetary stability, nostalgia for the quieter times of earlier decades is all too understandable. 7.2.2 The gains from international capital movements It is well to remember, however, that international capital movements can be a blessing, too. For one thing, the current account of the balance of payments may be volatile, and accommodating private capital flows, often engineered by interest rate decisions enacted by the central bank, provide an invaluable method—often really the only method—of financing them...
