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The currency crises that engulfed East Asian economies in 1997 and Mexico in 1994 - and their high development costs - raise a serious concern about the net benefits for developing countries of large flows of potentially reversible short-term international capital. Written by senior policy-makers and academics, the contributions to this volume examine in depth the macroeconomic and other policy dilemmas confronting public authorities in the emerging economies as they deal with short-term capital movements, especially in the period before the outbreak of these crises. The studies are based on comparative case studies of key emerging economies. Valuable insights are also derived from contrasts between the East Asian, Latin American, African, and European experiences, between the financial and real effects of financial flows, and between private and public responsibilities in managing financial markets. The great value of the chapters in this volume is that they analytically identify the weaknesses in both domestic and international capital market regimes. The recommendations derived from this analysis apply to the development of financial markets in developing countries, the monitoring and regulation of mutual funds in source countries, and the future development of international capital markets. They will make an important contribution both to the discussion of national policies and of a new international financial architechture.
An authoritative assessment of the debate over the role of volatile private capital flows and their impact on developing countries. The book outlines the long history of concern about these issues, going back to preparations for the Bretton Woods agreement. It assesses their acceleration with the growth of international capital and looks at key case studies from Latin America, Asia and Africa to assess the possibilities and problems for national and international policy responses.
This paper considers the new forms and roles of private capital flows to developing countries in the 1990s and appropriate national and international policy responses to the problems and possibilities they create. Section 2 describes the growth of these flows in the 1990s, their role in development and some of their effects in recipient countries. Section 3 considers alternate capital account policies for developing countries. In section 4 the possibility of improved international arrangements is considered. Section 5 contains recommendations from the previous analysis.
This paper proposes a methodology for testing whether capital flows to developing countries are determined by economic fundamentals or by purely speculative forces. We use the intertemporal optimizing approach to current account determination as our benchmark for judging the behavior of capital flows. According to this approach, capital flows should act as a buffer to smooth consumption in the face of temporary shocks to national cash flow, defined as output less investment less government expenditures. The results are encouraging. For a large sample of developing countries, economic fundamentals are indeed found to be the most important determinant of capital flows.
Capital flight - the unrecorded export of capital from developing countries - often represents a significant cost for developing countries. It also poses a puzzle for standard economic theory, which would predict that poorer countries be importers of capital due to its scarcity. This situation is often reversed, however, with capital fleeing poorer countries for wealthier, capital-abundant locales. Using a common methodology for a set of case studies on the size, causes and consequences of capital flight in developing countries, the contributors address the extent of capital flight, its effects, and what can be done to reverse it. Case studies of Brazil, China, Chile, South Africa, Thailand, Turkey and the Middle East provide rich descriptions of the capital flight phenomena in a variety of contexts. The volume includes a detailed description of capital flight estimation methods, a chapter surveying the impact of financial liberalization, and several chapters on controls designed to solve the capital flight problem. The first book devoted to the careful calculation of capital flight and its historical and policy context, this volume will be of great interest to students and scholars in the areas of international finance and economic development.
Over the past two decades, many low-income developing countries have substantially increased openness towards external financing and have received large capital inflows. Using bank-level micro data, this paper finds that capital inflows have been associated with financial deepening through increases in bank loans, deposits, and wholesale funding. Domestic banks increase loans more than foreign banks. There are only modest signs of a build-up in financial vulnerabilities. Causality is examined through an instrumental variable approach and an augmented inverse-probability weighting estimator. These approaches indicate only limited evidence for global push effects, pointing towards the importance of domestic pull factors.