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?
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asked Jul 14, 2018 at 21:00
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1 Answer
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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
