

Capital flight

Capital flight Definition

Capital flight, in economics, occurs when assets and/or money rapidly flow out of a country, due to an economic event 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 (devaluation).


Capital flight was seen in some Asian and Latin American markets in the 1990s. The Argentine economic crisis of 2001 was in part the result of massive capital flight, induced by fears that Argentina would default on its external debt (the situation was made worse by the fact that Argentina has an artificially low fixed exchange rate and was dependent on large levels of reserve currency).

Ask a Question

Newsletter cover