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In this case, the net capital flow is zero. $100 is transferred from B to A, and a business worth $100 is transferred from A to B.
by kcanini 9y ago
In this case, the net capital flow is zero. $100 is transferred from B to A, and a business worth $100 is transferred from A to B.
- ryandamm 9y agoThere's merely a transfer of liquidity if the two villages share a currency. But that's a delicate equilibrium; to wit, the Euro area, where capital flows can't be balanced by the exchange rate mechanism, so they're balanced by unemployment. Pettis does a better job of explaining (my previous, insanely-long-winded post is exhibit A), but the net result of unbalanced capital flows is typically an increase in debt, which is often manifested in the unemployment rate for an open economy. That's basically the story in peripheral Europe right now; Greece suffered more from a fixed exchange rate with Germany than from corruption and tax avoidance. At least, if you subscribe to the balance sheet analysis.
- deleted 9y ago[deleted]