Capital Flows and Net Capital Outflow

Net, capital, outflow, (NCO), is, the, difference, between, domestic, residents', purchases, of, foreign, assets, and, foreign, residents', purchases, of, domestic, assets., If, NCO, is, positive,, the, country, is, sending, out, more, financial, capital, than, it's, bringing, in., If, it's, negative,, that, means, the, country, is, a, net, recipient, of, foreign, investment.

This, concept, ties, back, to, the, loanable, funds, market, from, earlier., In, an, open, economy,, national, savings, fund, both, domestic, investment, and, net, capital, outflow., In, simple, terms,, Saving, =, Domestic, Investment, +, NCO., When, NCO, changes, due, to, relative, interest, rates, or, expected, returns, abroad,, it, shifts, the, demand, or, supply, in, the, loanable, funds, market., This, also, affects, the, domestic, real, interest, rate,, just, like, a, change, in, domestic, investment, demand, would.

NCO, connects, directly, with, the, trade, balance., NCO, must, equal, net, exports, (NX), in, the, balance, of, payments., If, a, country, has, a, trade, deficit, (importing, more, than, exporting),, it’s, also, a, net, recipient, of, foreign, capital., Someone, needs, to, finance, that, deficit,, which, results, in, negative, NCO., This, isn’t, just, a, coincidence;, it’s, an, accounting, identity, that, must, be, true.

This, identity, reveals, an, important, real-world, trend., A, country, that, attracts, a, lot, of, foreign, investment, inflows, (negative, NCO,, since, more, foreign, capital, is, coming, in, than, domestic, capital, is, going, out), will, likely, run, a, trade, deficit., The, capital, account, and, the, current, account, are, two, sides, of, the, same, balance-of-payments, coin., They, move, together,, not, as, separate, events.