Instability and Volatility of Capital Flows to Developing Countries
Author(s)
Gabriele, Alberto; Boratav, Korkut; Parikh, Ashok
Abstract
Some of the issues related to capital movements between developed and developing countries are depicted, discussed and analyzed. The statistical analysis was based on IMF and World Bank data sources relative to different groups of developing countries. Both instability and volatility of total capital flows to developing countries and of their components have increased in the last period, 1990-1998, as compared to previous periods. The policy conclusions are not optimistic. In the majority of developing countries private capital inflows are dramatically insufficient worth respect to development needs. In the relatively few, mostly middle-income, developing countries where capital flows reach a sizeable amount, only a small fraction is translated into productive investment. Moreover capital flows tend to be very volatile and thus contribute to increased macroeconomic instability and to the frequency of crises.
