Global Economic Divergence and Portfolio Capital Flows to Emerging Markets

Market Failure and Capital Flows to Emerging Markets

The level, tenor and instability of capital flows from global financial markets towards developing countries are a major source of concern for macroeconomic managers, while their causes remain largely unexplained by economic theory. Country ‘fundamentals’ (such as economic growth, monetary stability and institutional capacity) as sources of default risk have been the main focus of economic rese...

Capital Flows to Emerging Markets: The Myths and Realities

“...capital account liberalization is...similar to the issue of how the human race should make use of fire. Fire warms our homes. It cooks our food, our internal combustion engines. It powers our automobiles and trucks and our turbojets. It powers our airplanes. No doubt, fire is very useful, and we are not going to give up its manifold benefits. On the other hand, fire can also burn you down a...

Capital Flows, Output Volatility, and Financial Crises in Emerging Markets

The surge in capital flows towards emerging market countries is one of the major developments in the world economy in the 1990s. In particular, short-term flows, in the form of portfolio investments or bank loans, have grown at an extremely rapid pace. At the same time, emerging markets have experienced an increasing number of financial crises, with dire consequences. It is increasingly argued ...

CAPITAL FLOWS AND ECONOMIC PERFORMANCE : Are Emerging Economies Different ?

Capital Flows: Emerging Issues

I. Recent Currency Crises A salient fact of Mexico’s and Thailand’s recent currency crises is the active role played by the monetary authority in contributing to the loss of reserves. In both cases, domestic credit showed a sizable increase, driven in part by central bank loans to the financial sector. This stands in sharp contrast with the standard economist’s model in which the proximate caus...