, in economics
, occurs when assets
rapidly flow out of a country, due to an event of economic consequence or as the result of economic globalization
. Such events could be an increase in taxes
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 probably also, 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.
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 country of origin. It is indicated as missing money from a nation's balance of payments
Within a country
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 as a result of high crime and violence rates in black majority cities, and 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
likewise as a result of crime and violence in inner cities.
Ratio of German assets in tax havens
to German GDP.
The "Big 7" shown are Hong Kong, Ireland, Lebanon, Liberia, Panama, Singapore, and Switzerland.
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.
A 2006 article in The Washington Post
gave several examples of private capital leaving France
in 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."
In the book La Dette Odieuse de l'Afrique: Comment l'endettement et la fuite des capitaux ont saigné un continent
(Amalion 2013), Léonce Ndikumana
and James K. Boyce argue that more than 65% of Africa's borrowed debts do not even get into countries in Africa, but remain in private bank accounts in tax havens all over the world.
Ndikumana and Boyce estimate that from 1970 to 2008, capital flight from 33 sub-Saharan
countries totalled $700 billion.
In the run up to the British referendum on leaving the EU there was a net capital outflow
of £77 billion in the preceding two quarters, £65 billion in the quarter immediately before the referendum and £59 billion in March when the referendum campaign started. This corresponds to a figure of £2 billion in the equivalent six months in the preceding year.
- ^ Ajayi, S. Ibi; Léonce Ndikumana (2015). Capital Flight from Africa: Causes, Effects, and Policy Issues. Oxford University Press. p. 3. ISBN 978-0198718550. Retrieved 5 January 2017.
- ^ Epstein, Gerald A. (2005). Capital Flight and Capital Controls in Developing Countries. Edward Elgar Publishing. p. 11. ISBN 9781781008058. Retrieved 5 January 2017.
- ^ McLeod, Darryl (2002). "Capital Flight". In David R. Henderson (ed.). Concise Encyclopedia of Economics (1st ed.). Library of Economics and Liberty. OCLC 317650570, 50016270, 163149563
- ^ Ul Haque, Nadeem; Pakistan Institute of Development Economics (2009). Brain drain or human capital flight. Pakistan Institute of Development Economics. p. 3. ISBN 978-9694611303. Retrieved 5 January 2017.
- ^ Hebous, Shafik (27 September 2011). "Money at the Docks of Tax Havens: A Guide". CESifo Working Papers (3587): 27. SSRN 1934164.
- ^ Moore, Molly (16 July 2006). "Old Money, New Money Flee France and Its Wealth Tax". The Washington Post. Retrieved 21 September 2019.
- ^ Kar, Dev; Cartwright-Smith, Devon (14 December 2008). "Illicit Financial Flows from Developing Countries: 2002-2006". Global Financial Integrity. Retrieved 21 September 2019.
- ^ Watts, Robert; Chittenden, Maurice (13 December 2009). "Hundreds of bosses flee UK over 50% tax". The Times. Retrieved 21 September 2019.
- ^ Evans-Pritchard, Ambrose (16 May 2012). "Debt crisis: Greek euro exit looms closer as banks crumble". The Telegraph. Retrieved 21 September 2019.
- ^ Ndikumana, Léonce; Boyce, James K. (9 April 2013). La dette odieuse de l'Afrique : comment l'endettement et la fuite des capitaux ont saigné un continent (in French). Éd. Amalion. ISBN 978-2-35926-022-9.
- ^ Stoddard, Ed (15 March 2012). "RPT-AFRICA MONEY-Should Africa challenge its "odious debts?"". Reuters. Retrieved 21 September 2019.
- ^ Conway, Ed (7 June 2016). "EU: Osborne Warning Over Capital Flight Cost". Sky News. Retrieved 21 September 2019.
Last edited on 21 April 2021, at 18:07
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