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The Boom in Capital Flows to Developing Contries : Will It Go Bust Again?

Author

Listed:
  • Yilmaz Akyüz

    (South Center)

Abstract

This paper argues that the policy of quantitative easing and maintaining close-to-zero interest rates in advanced economies, notably the US, has been generating a surge in speculative capital flows to developing countries in search of yield and creating bubbles in foreign exchange, asset, credit and commodity markets. This latest generalized surge constitutes the fourth postwar boom in capital flows to developing countries. All previous ones ended with busts, causing serious damage to recipient countries. The conditions driving the recent boom in capital flows and commodity prices are not sustainable, and they are likely to be followed by a sharp downturn. Various scenarios that can bring them to an abrupt end are discussed. Examining the policy responses and financial and macroeconomic developments in major emerging economies, the paper concludes that deficit commodity-rich economies that have been enjoying the dual benefits of global liquidity expansion –that is, the boom in capital flows and commodity markets – are most vulnerable to a possible reversal and urges them to manage capital flows more effectively.

Suggested Citation

  • Yilmaz Akyüz, 2012. "The Boom in Capital Flows to Developing Contries : Will It Go Bust Again?," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 1(1), pages 63-96, January.
    • Handle: RePEc:tek:journl:v:1:y:2012:i:1:p:63-96
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    File URL: http://ekonomitek.org/pdffile/7_dergi_makale3_yilmaz_akyuz.pdf
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    References listed on IDEAS

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    Cited by:

    1. Pınar Gebeşoğlu, 2015. "How Fragile Is Turkey: A Comparative Study on the Social Impacts of the Global Financial Crisis in Emerging Market Economies," EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey 25, Ekonomik Yaklasim Association.
    2. Costas Lapavitsas & Aylin Soydan, 2020. "Financialisation in developing countries: Approaches, concepts, and metrics," Working Papers 240, Department of Economics, SOAS University of London, UK.

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    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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