What does the term 'capital flight' refer to?

The term 'capital flight' specifically refers to the rapid outflow of financial assets from a country, often occurring in response to economic instability, political turmoil, or unfavorable conditions such as high inflation, currency devaluation, or government intervention. When investors fear for the safety of their investments, they may withdraw their funds and transfer them to less risky environments, typically in more stable countries. This outflow can harm the domestic economy by reducing the availability of investment capital, leading to a decline in economic growth and an increase in unemployment.

Options that imply investment in foreign markets or relocating for tax incentives do not encompass the urgency and context of capital flight. While moving capital from rural to urban areas is related to internal economic migration, it does not align with the concept of capital being moved out of a country in reaction to crises. Thus, the correct choice captures the essence of the term as it relates to economic behavior reflecting a loss of confidence in the local economy.