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Crowding out is the process in biology where the introduction of new species to an environment causes new competition with previously existing species, usually while radically changing the environment.
When a new species is introduced to an environment, one of two things typically happens. One possibility is that the new species is unprepared for the new environment and dies out quickly. There would be a strong evolutionary pressure to adapt quickly or become extinct.
The second possibility is that the previously existing species are unprepared for the new one. The new species easily and quickly reproduces. As a result of the increase, the competing species may become extinct. Those competing species are said to be crowded out.
Crowding out is also a term in economics. It happens when the government is borrowing heavily while businesses and individuals also would like to borrow. The government can always pay the market interest rate, but the private sector cannot, and is therefore crowded out. The state is in other words borrowing so much that interest rates increase, which in effect squeezes the private sector out of the credit markets. Crowding out can also come from state spending on areas that might be provided more efficiently by the private sector, such as health care, or even through charity and redistribution.
At times, excessive government borrowing has caused low private sector borrowing and, consequently, low investment and (because the economic returns on public borrowing are typically lower than those on private debt, especially corporate debt) slower economic growth. This has become less of a concern in recent years as government indebtedness has declined and, because of globalization, companies have become more able to raise capital outside their home country.
de:Verdrängungseffekt
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