Capital flight, in economics Economics is the social science that is concerned with the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current, occurs when assets In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simplistically stated, assets represent ownership of value that can be converted into cash . The balance sheet of a firm and/or money Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally, a standard of deferred payment rapidly flow out of a country In geography, a country is a geographical region. The term is often applied to a political division or the territory of a sovereign state, or to a smaller, or former, political division of a geographical region. Usually, but not always, a country coincides with a sovereign territory and is associated with a state, nation or government, due to an economic event that disturbs investors The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. Less frequently, the term is applied to parties who purchase real estate, currency, commodity derivatives, personal property 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 Wealth is the abundance of valuable resources or material possessions or the control of such assets. The word wealth is derived from the old English wela, which is from an Indo-European word stem. An individual, community, region or country that possesses an abundance of such possessions or resources is known as wealthy and is usually accompanied by a sharp drop in the exchange rate In finance, the exchange rates between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example an exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 91 is worth the same as USD 1 of the affected country (depreciation Depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years in a variable exchange rate regime, or a forced devaluation In common modern usage, it specifically implies an official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency. In contrast, depreciation is used for the unofficial decrease in the exchange rate in a floating 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 of faith in the economy and devaluation of their currency, but probably also their assets have lost much of their nominal The distinction between real value and nominal value occurs in many fields. From a philosophical viewpoint, nominal value represents an accepted condition which is a goal or an approximation as opposed to the real value, which always is actually present. Often a "nominal" value is a de facto standard rather than a typical or average value. This leads to dramatic decreases in the purchasing power Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing power in the 1950s. Currency can be either a of the country's assets and makes it increasingly expensive to import The term "import" is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus an import is any goods.
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Discussion
Legality
Capital flight may be legal or illegal. 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.
Capital flight 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. Johannesburg Johannesburg also known as Jozi, Jo'burg or eGoli, is the largest city in South Africa. Johannesburg is the provincial capital of Gauteng, the wealthiest province in South Africa, having the largest economy of any metropolitan region in Sub-Saharan Africa.[citation needed] The city is one of the 40 largest metropolitan areas in the world, and is in particular has been abandoned by business moving to northern suburbs Suburb mostly refers to a residential area. They may be the residential areas of a city, or separate residential communities within commuting distance of a city. Some suburbs have a degree of political autonomy, and most have lower population density than inner city neighborhoods. Modern suburbs grew in the 20th century as a result of improved. The 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 ^ b. English is the de facto language of American government and the sole language spoken at home by 80% of Americans age five and older. Spanish is the second most commonly spoken language.
Recent examples
In 1995, the International Monetary Fund The International Monetary Fund is the international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments (IMF) estimated that capital flight amounted to roughly half of the outstanding foreign debt of the most heavily indebted countries of the world.
Capital flight was seen in some Asian Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.6% of the Earth's total surface area and with approximately 4 billion people, it hosts 60% of the world's current human population. During the 20th century Asia's population nearly quadrupled and Latin American Latin America is a region of the Americas where Romance languages (i.e., those derived from Latin) – particularly Spanish, Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,501 km² (7,880,000 sq mi), almost 3.9% of the Earth's surface or 14.1% of its land surface area. As of 2009, its markets in the 1990s. The Argentine economic crisis The Argentine economic crisis was a financial situation that affected Argentina's economy during the late 1990s and early 2000s. Macroeconomically speaking, the critical period started with the decrease of real GDP in 1999 and ended in 2002 with the return to GDP growth, but the origins of the collapse of Argentina's economy, and their effects on of 2001 was in part the result of massive capital flight, induced by fears that Argentina would default In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either unwilling or unable to pay their debt. This can occur on its external debt External debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF and World Bank (the situation was made worse by the fact that Argentina has an artificially low fixed exchange rate In finance, the exchange rates between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation’s currency in terms of the home nation’s currency. For example an exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 91 is worth the same as USD 1 and was dependent on large levels of reserve currency A reserve currency, or anchor currency, is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, such as oil, gold, etc). This was also seen in Venezuela Venezuela (pronounced /ˌvɛnɨˈzweɪlə/ ; Spanish: [beneˈswela]), officially called the Bolivarian Republic of Venezuela (Spanish: República Bolivariana de Venezuela), is a tropical country on the northern coast of South America. It is a continental mainland with numerous islands located off its coastline in the Caribbean Sea. The republic is in the early 1980s with one year's total export income leaving through illegal capital flight.
In the last quarter of 20th century capital flight was observed from countries that offer low or negative real interest rate The "real interest rate" is approximately the nominal interest rate minus the inflation rate . Since the inflation rate over the course of a loan is not known initially, volatility in inflation represents a risk to both the lender and the borrower (like Russia and Argentina) to countries that offer higher real interest rate (like China).
A 2006 article in The Washington Post The Washington Post is Washington, D.C.'s largest newspaper and its oldest, founded in 1877. Located in the capital of the United States, The Post has a particular emphasis on national politics. D.C., Maryland, and Virginia editions are printed for daily circulation gave several examples of private capital leaving France France (pronounced /ˈfrænts/ frantss or /ˈfrɑːnts/ frahnts; French pronunciation (help·info): [fʁɑ̃s]), officially the French Republic (French: République française, pronounced: [ʁepyblik fʁɑ̃sɛz]), is a state in Western Europe with several of its overseas territories and islands located on other continents and in the Indian, in response to the country's wealth tax A wealth tax is generally conceived of as a levy based on the aggregate value of all household holdings actually accumulated as purchasing power stock , including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock,. 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." [1]
A 2008 paper published by Global Financial Integrity estimated capital flight, also called illicit financial flows to be "out of developing countries are some $850 billion to $1 trillion a year."[2]
A 2009 article in The Times The Times and its sister paper The Sunday Times are published by Times Newspapers Limited, a subsidiary of News International. News International is entirely owned by the News Corporation group, headed by Rupert Murdoch. Though traditionally a moderately centre-right newspaper and a supporter of the Conservatives, it supported the Labour Party in reported that hundreds of wealthy financiers and entrepreneurs had recently fled the U.K. The United Kingdom of Great Britain and Northern Ireland[note 7] is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of the island of Ireland, and many small islands. Northern Ireland is the only part of the UK with a land in response to recent tax increases, and had relocated in low tax destinations such as Jersey The Bailiwick of Jersey is a British Crown Dependency off the coast of Normandy, France. As well as the island of Jersey itself, the bailiwick includes two groups of small islands which are no longer permanently inhabited, the Minquiers and Écréhous, and the Pierres de Lecq and other rocks and reefs. Together with the Bailiwick of Guernsey, it, Guernsey The Bailiwick of Guernsey is a British Crown Dependency in the English Channel off the coast of Normandy, the Isle of Man The Isle of Man , otherwise known simply as Mann (Manx: Mannin, [ˈmanɪn]), is a self-governing British Crown Dependency, located in the Irish Sea between the islands of Great Britain and Ireland. The head of state is Queen Elizabeth II, who holds the title of Lord of Mann. The Lord of Mann is represented by a Lieutenant Governor. The island is, and the British Virgin Islands The British Virgin Islands , also called the Virgin Islands is a British overseas territory, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S. Virgin Islands. Technically the official name of the Territory is simply the "Virgin Islands&.[3]
See also
- Sudden stop (economics)
- Human capital flight (brain drain)
- Tax exporting Tax exporting occurs when a country encourages economic activity to move to another country (or jurisdiction) because its taxes are too high. This is more likely if the economic activity is more mobile. For example, land is not mobile, so it is difficult (if not impossible) for a country to export land taxes to another country. On the other hand,
- Capital strike Capital strike refers to the withholding of new investment in an economy. A capital strike can occur when banks decide to raise lending standards or minimum loan requirements to individuals and business entities, and decide to sit on cash reserves, rather than take many loan risks, until a later point in time. A capital strike can occur when
- illicit financial flows
References
- ^ Moore, Molly; "Old Money, New Money Flee France and Its Wealth Tax"; Washington Post Foreign Service; July 16, 2006; Page A12
- ^ Illicit Financial Flows From Developing Countries: 2002-2006, Dev Kar and Devon Cartwright-Smith, 2008
- ^ Hundreds of bosses flee UK over 50% tax, The Times, December 13, 2009
External links
- Capital flight after revolution Anarchist Anarchism is a political philosophy which considers the state undesirable, unnecessary and harmful, and instead promotes a stateless society, or anarchy. It seeks to diminish or even abolish authority in the conduct of human relations. Anarchists may widely disagree on what additional criteria are required in anarchism. The Oxford Companion to view of capital flight
- "Capital Flight" from the Concise Encyclopedia of Economics
- European Network on Debt and Development reports, news and links on capital flight.
- Eurodad: Capital Flight, tax justice and financial regulation
- Global Financial Integrity: Studies and works to curtail capital flight from developing countries.
Categories: Capital This category is about the economic concept of capital; for capital cities, see Category:Capitals; other uses, see Capital | Taxation and efficiency
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