Outflow of Capital

Categories: International, Econ

You are a stunningly deep sleeper. One day, you fall asleep on the beach just before the tide comes in. When you wake up (covered in seaweed and surrounded by flopping fish), you find that everything you brought to the beach has washed out to sea. Your towels. Your beach umbrella. Your cooler with the mango juice and the cups made out of coconuts. And your wallet, with that stack of cash you brought for vacation.

Capital outflow in a nutshell. Well, in a coconut shell.

Real-life capital outflow involves the same concept...only on a national level. Assets move out of country. Investors pull their money out of one place because they think their cash will be better off somewhere else.

You're an investor in a sumac farm in the small Mediterranean nation of Shlobania. The king dies and his dopey son takes over the throne. Uh-oh. You’re sure the new king’s policies will run the country’s economy into the ground. So you close down your sumac farm and buy another one in a neighboring country with a more stable future. Capital outflow out of Shlobania and into its neighbor. Capital outflow doesn’t just involve foreigners moving money from one overseas investment to another. Citizens of a country might move assets out of that nation if they think they’ll be safer somewhere else.

Take China. A country with a restrictive government and not a huge respect for the rule of law. If you’re a rich person in China, you’ll want to get as much of your money out as you can. Move it somewhere else. You want to get your capital to a safe harbor against your own government.

You take what cash you can and look for investments elsewhere...outside of the restrictive rules in China. You buy an apartment in Paris. Or a castle in Scotland. Or a cotton candy factory in Iowa. Or...maybe you start looking at a sumac farm along the Mediterranean.

Just not in Shlobania.

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Econ: What is Outflow of Capital?2 Views

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And finance Allah shmoop What is the outflow of capital

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All right well you are a stunningly deep sleeper One

00:10

day you fall asleep on the beach just before the

00:12

tide comes in When you wake up covered in you

00:15

know seaweed and surrounded by a flopping fish You find

00:18

that everything you brought to the beach was washed out

00:21

to the sea Your towel's your beach umbrella You're cooler

00:24

with the mango juice and the cops you know made

00:27

out of coconuts And your wallet Yeah that thing with

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that stack of cash you brought for vacation Well capital

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outflow in a nutshell Well in a coconut shell anyway

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Riel life capital outflow refers to the same concept but

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only on a national level That is assets move out

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of the country They flow out Investors pull their money

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out of one place because they think their cash will

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be better off somewhere else You're an investor in a

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Su Mak farm in the small Mediterranean nation of Slovenia

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The king dies and his dopey son takes over the

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throne So yeah you're sure the new king's policies will

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ruin the country's economy and run everything businesswise into the

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ground So you closed down your Su Mak farm and

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you buy another one in a neighbouring country with a

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more stable future in a way smarter Qing Capital Outflow

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out of Slovenia and into its neighbour That's what's happening

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Well Capital outflow doesn't just involve foreigners moving money from

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one overseas investment to another Citizens of a country might

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move assets out of that nation if they think they'LL

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be safer somewhere else So let's go to China It's

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a country with a restrictive government and not a huge

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respect for the rule of law for its individuals Like

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if you're a rich person in China well you'LL want

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to get as much of your money out is you

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can most likely anyway move it somewhere else somewhere safer

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somewhere less scrutinizing So you take what cash you can

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and you look for investments elsewhere outside of the restrictive

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rules of China So you buy an apartment in Paris

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and maybe a small castle with little golf course in

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Scotland and then you come back around and buy a

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cotton candy factory with corn in Iowa Or maybe you

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start looking at ASU Mac Farm along the Mediterranean Yeah 00:02:09.365 --> [endTime] just not inched Slovenia

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