Capital outflow is an
economic
An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...
term describing
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
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 control
Capital controls are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets into and out of the country's capital account. These measure ...
s). 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 ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
experienced rampant and sudden capital outflows in the 1990s after its
currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" 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 ...
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 basket of other currencies, or another ...
, leading to a
recession
In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
. Modern macro-economists often cite the country as a classic example of the difficulties of developing fledgling economies.
See also
*
Capital account
In macroeconomics and international finance, the capital account, also known as the capital and financial account records the net flow of investment transaction into an economy. It is one of the two primary components of the balance of payments, ...
*
Capital flight
Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increa ...
References
* Blustein, Paul. ''And the Money Kept Rolling In (And Out)''
International macroeconomics
Capital (economics)
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