How net capital outflow is equal to net exports suppose I export a car to US and in return i got few thousand dollars then instead of acquiring any asset abroad i decided to bring money back to my home country by exchanging dollar with local currency. Can any one clear my confusion?


1 Answer 1


Suppose you are Japanese and you sold your Japanese-made car for say $\$15,000$

You now own $\$15,000$ of a foreign financial asset you did not have before, whether a debt from a US company or individual or US cash or a bank deposit. This is what you are describing as a capital outflow from Japan, though I would call it a financial outflow

You then sell this asset for say $\yen 1,650,000$ which you can use in Japan

  • You may have acquired these yen from some other Japanese person or company. They now hold the foreign financial asset, so this does not have a further effect of the international financial position

  • You may have acquired these yen from some US person or company, or from an entity from a third country. They now hold fewer financial Japanese assets, so your subsequent negative financial outflow (wiping out your original positive outflow) is balanced by the negative financial inflow (from a Japanese perspective) of the US or other foreign entity reducing its Japanese assets. This negative financial inflow is equivalent to a positive financial outflow


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