Leakage

Written By
Paul Tracy
Updated November 4, 2020

What is Leakage?

Leakage occurs when money leaves an economy. In the investor relations world, leakage also refers to the unauthorized or unanticipated dissemination of information.

Leakage Example

Let's say interest rates in Country X suddenly surpass interest rates in Country Y. Money begins to leak out of Country X and into Country Y as investors seek higher returns for the same amount of risk.

Another example includes a common problem involving transnational corporations. This occurs when large companies have factories or production facilities in countries that are less developed. These factories produce wealth which is often not transferred to the host country's economy and instead retained by the corporation involved. The economic value of the goods and/or profits lost here is leakage.

Why Leakage Matters in Economics

Leakage matters because it represents revenue lost. It can have many forms; interest rates are just one way for money to leak out of an economy. High taxes can have the same effect, as can excessive saving or higher interest in purchasing imported goods. In any case, the exit of money from an economy means the businesses in those economies must look for other forms of revenue. The shortage of capital can spur governments to stimulate the economy as a result.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Leakage.
Be the first to ask a question

If you have a question about Leakage, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Leakage, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Leakage

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms