Capital outflow is an
economic
An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...
term describing
capital flowing out of (or leaving) a particular economy. Outflowing capital can be caused by any number of economic or political reasons but can often originate from instability in either sphere.
Regardless of cause, capital outflowing is generally perceived as undesirable and many countries create laws to restrict the movement of capital out of the nations' borders (called
capital controls). While this can aid in temporary growth, it often causes more economic problems than it helps.
# Massive capital outflow is usually a sign of a greater problem, not the problem itself.
# Countries with outflow restrictions can find it harder to attract capital inflows because firms know if an opportunity goes sour they won't be able to recover much of their investment.
# Governments that institute capital controls inevitably send a signal to their citizens that something might be wrong with the economy, even if the laws are merely a precautionary measure.
Argentina
Argentina, officially the Argentine Republic, is a country in the southern half of South America. It covers an area of , making it the List of South American countries by area, second-largest country in South America after Brazil, the fourt ...
experienced rampant and sudden capital outflows in the 1990s after its
currency
A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use within a specific envi ...
underwent dramatic pressure to adjust in light of the
fixed exchange rate
A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a currency basket, basket of other currenc ...
, leading to a
recession. Modern macro-economists often cite the country as a classic example of the difficulties of developing fledgling economies.
See also
*
Capital account
*
Capital flight
References
* Blustein, Paul. ''And the Money Kept Rolling In (And Out)''
International macroeconomics
Capital (economics)
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