Question

In what sense are capital flows inter-temporal trade?

Answer 1

Intertemporal choice describes how current decisions affect what options become available in the future. Flow of capital between countries arise from saving & investment decisions which are based on intertemporal conditions. If a country has a preference for future over current consumption opportunities, then consumption levels could increase significantly in the future. At one extreme, a country could consume all of this and have no capital for the future.They will save nothing. Present consumption would be maximized, but there would be no future consumption because there would be no capital in the future to work with labor. Therefor we can say that capital flows are intertemporal.