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Managing Capital Flows to Developing Economies: Issues and Policies

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  • Yap, Josef T.

Abstract

The level of capital flows to developing countries had increased dramatically over the decade prior to the 1997 Asian financial crisis. In terms of composition, private capital flows dominated official flows beginning in 1992. The surge in private capital flows to emerging market economies was a reflection of the rapid expansion and integration of international capital markets that had been driven by economic policy and structural changes, and technological factors. Despite empirical evidence to the contrary, capital flows are generally considered to be beneficial to the process of economic development. Policies to manage capital flows must then be implemented in order to minimize their costs and prevent their disruptive effects. Policy options at the domestic level range from macroeconomic adjustments to microeconomic tools, which include capital controls. At the regional level, policy options for managing capital flows and economic crises include the proposed Asian Monetary Fund and the expanded ASEAN currency swap arrangement. At the international level, proposed grand schemes should give way to more incremental reforms, which revolve around modifying the role of multilateral organizations to make them more relevant (e.g. greater emphasis on the surveillance role of the IMF), improving macroeconomic policy coordination to enhance global economic stability, and increasing private-sector involvement in any debt-restructuring process.

Suggested Citation

  • Yap, Josef T., 2000. "Managing Capital Flows to Developing Economies: Issues and Policies," Discussion Papers DP 2000-41, Philippine Institute for Development Studies.
  • Handle: RePEc:phd:dpaper:dp_2000-41
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
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    9. Helmut Reisen, 1996. "Net capital inflows: how much to accept, how much to resist?," Proceedings, Federal Reserve Bank of San Francisco, pages 289-321.
    10. Fernandez-Arias, Eduardo & Montiel, Peter J, 1996. "The Surge in Capital Inflows to Developing Countries: An Analytical Overview," World Bank Economic Review, World Bank Group, vol. 10(1), pages 51-77, January.
    11. Howell H Zee, 2000. "Retarding Short-Term Capital Inflows Through withholding Tax," IMF Working Papers 00/40, International Monetary Fund.
    12. Michael P. Dooley, 1995. "A Survey of Academic Literature on Controls over International Capital Transactions," NBER Working Papers 5352, National Bureau of Economic Research, Inc.
    13. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
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    Keywords

    capital controls;

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