Why should S-I imply Net capital outflow

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L14
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Why should S-I imply Net capital outflow

L14
Guys, need an insight into Savings and Investment identity. I know I'm missing something. Please clarify.

Why should S-I imply Net capital outflow?
Let me bring the example in Mankiw (Pg 138). Gates sells a copy of Windows OS to a Japanese customer for 5000 yen. The export of US increases by 5000yen. NX(US)=5000yen. Now consider Gates has 5000yen in his pocket and he is not willing to spend it on anything. So saving increases by 5000yen and S-I of US increases by 5000yen. My question is why should S-I imply net capital outflow. The money on the export is still with US, there is no flow of this amount outside the country.
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Re: Why should S-I imply Net capital outflow

economist
They are equal in a way they are calculated, which makes it an identity.
you see, the money with gates can end up in following places.
1. He keeps it in his pocket, hence increases saving. Hence increase in saving matches amount of export.
2. He gets yen , those yen in US has no use, either somebody uses it to buy something from japan, or it ends up with fed. Which will either buy yen securities or increases its forex reserves. Both of which are considered as outflow in income accounts.

hope it helps!
L14
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Re: Why should S-I imply Net capital outflow

L14
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thanks mate..got it!