1. What causes Capital Flight to happen?

It is movement of large sums of money from one country to another to escape political
or economic turmoil or to seek higher rates of return.
When capital flows rapidly out of a country, usually because something happens which
causes investors suddenly to lose confidence in its economy (strictly speaking, the
problem is not so much the money leaving , but rather than investors in general
suddenly lower their valuation of all the assets of the country).
This is particularly worrying when the flight capital belongs to the country's own
citizens.
This is often associated with a sharp fall in the exchange rate of the abandoned
country's currency.

2. Do you think it is better for the government to have more FDI (Foreign Direct
Investment) than FPI (Foreign Portfolio Investment)?

Yes, according to my better government has more FDI ( Foreign direct investment),
Because of the specter of capital flight, most nations prefer foreign direct investment
(FDI) rather than foreign portfolio investment (FPI). After all, FDI involves long-term
investments in factories and enterprises in a country, and can be exceedingly difficult to
liquidate at short notice. On the other hand, portfolio investments can be liquidated and
the proceeds repatriated in a matter of minutes, leading to this capital source often
being regarded as “hot money.”

Capital flight can also be instigated by resident investors fearful of government policies
that will bring down the economy. For example, they might begin investing in foreign
markets, if a populist leader with well-worn rhetoric about protectionism is elected, or
if the local currency is in danger of being devalued abruptly. Unlike the previous case, in
which foreign capital finds its way back when the economy opens up again, this type of
flight may result in capital remaining abroad for prolonged stretches. Outflows of the
Chinese yuan, when the government devalued its currency, occurred several times after
2015.In a low-interest rate environment, “carry trades” – which involve borrowing in
low-interest rate currencies and investing in potentially higher-return assets such as
emerging market equities and junk bonds – can also trigger capital flight. This would
occur if interest rates look like they may head higher, which causes speculators to
engage in large-scale selling of emerging market and other speculative assets, as was
seen in the late spring of 2013.

During periods of market volatility, it is not uncommon to see the expressions capital
flight and flight to quality used interchangeably. Whereas capital flight might best
represent the outright withdrawal of capital, flight to quality usually speaks to investors
shifting from higher yielding risky assets to more secure and less risky alternatives.