What is capital flight ?

Capital flight

Capital flight is the sudden or rapid transfer of funds or assets from one country to another, usually due to perceived economic instability, political risk, or lower investment opportunities. It results in a reduction of available capital in the country of origin, potentially causing economic harm.

Capital flight is a phenomena where people or companies transfer their assets from one nation to another as a result of perceived or real economic, political, or social unrest. 

People might decide to transfer their money to a more stable foreign currency or to a foreign bank account, for instance, if their home nation is dealing with high levels of inflation, a weak currency, or political turmoil. 

This may cause the value of the native currency to decline, inflation to increase, and investment in the domestic economy to decline. The capital flight that occurred in Venezuela recently as a result of its political and economic turmoil serves as a practical illustration.

How it is helpful for correction of markets?

By balancing the supply and demand of capital in various nations, capital flight can correct the market. A country's currency may become overvalued and inflationary if it has a capital surplus. 

A market correction, including a decline in inflation and a more balanced currency exchange rate, might result from capital flight in such a situation. 

The economy and financial stability of the nation of origin may be negatively impacted by excessive or protracted capital flight, which would reduce investment, employment prospects, and economic development. 

A mix of internal and external variables, such as adjustments to economic policy, increased political stability, and an increase in investment opportunities.