Question

What are the two main factors that influence capital flows into or out of the country if there are no regulatory barriers to international capital flows? explain

Answer 1

Factors Influencing Capital Flows
Various economic factors influence capital flows into and out of a country with no regulatory barriers to international capital flow. The size and the scope of the market can be analyzed as important factors that influence capital flow to and off a country along with other factors. Openness of the economy, per capita growth and interest rate will all influence in different ways to the capital flows. But the market size and scope will attract capital from different countries among the world. The scope of the market to attain better growth and returns will force investors to invest in the economy expecting efficient production and returns.
The size of the market will obviously have the ability to expand the production possibilities. A large market will further show tendency to expand through investments. Markets performing well will attract the capital from different countries expecting the market to perform better in short term and long term. These expectations further increase the anticipation about the market and changing the level of flow of capital in the market.
Emerging or flourished economy will give an outlook of possible stronger ability of the economy or the market to perform better. Cheap resources increase the scope of the economy attracting capital flows to the market. Cheap resources along with better infrastructure facility influence the capital flows stimulating the economy. Market with potential ability to grow with business environment influences the decision of capital flows. Investors analyze the market and try to invest according to the ability of the same to grow.