Question

How is Balance of Payments (B.O.P.) related to capital inflows? Give examples in policy scenario in developing countries

Answer 1

Balance of payment related to capital inflows in such a way because the balance of payment is the difference between the value of exports of goods and services and the value of import of goods and services so men there is the surplus of the balance of payment then it means there is a benefit for the domestic Industries to earn foreign exchange from the market.
Balance of payment includes both current account transactions and the capital account transactions so in this case, the capital inflow in the country is because of both current account items and capital account items.
In a policy scenario in developing countries government is going to provide the tariff benefits and the subsidies to the export-based industries to increase the export and to generate the capital inflows in the country.