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Capital flows to South Asian and ASEAN countries : trends, determinants, and policy implications


  • Husain, Ishrat
  • Kwang W. Jun


The authors compare the experiences of selected Asian countries in attracting different forms of external financing and examine how that financing has contributed to growth. They carry out the analysis for two subgroups - South Asian and ASEAN countries - with distinctly different dominant forms of capital flows. After reviewing recent trends in financial flows to individual countries, they perform a statistical analysis of the effects of foreign capital flows on the macroeconomic performance of developing countries in the region. They find that foreign direct investment has been a more significant positive factor than other types of resource flows in shaping the economic growth of ASEAN countries. Substantial increases in ODA flows are unlikely, and so is the resumption of significant bank lending, so policy makers in South Asia should pursue policies and nondistortionary incentive systems conducive to the infusion of foreign direct investment flows. The main findings are consistent with the Bank's emphasis on an increasingly important role for the private sector - and direct investment flows - in development. A focus on foreign direct investment is appropriate, given current constraints on external financing, particularly through traditional bank credits.

Suggested Citation

  • Husain, Ishrat & Kwang W. Jun, 1992. "Capital flows to South Asian and ASEAN countries : trends, determinants, and policy implications," Policy Research Working Paper Series 842, The World Bank.
  • Handle: RePEc:wbk:wbrwps:842

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    References listed on IDEAS

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    6. Rosenzweig, Mark R & Schultz, T Paul, 1985. "The Demand for and Supply of Births: Fertility and Its Life Cycle Consequences," American Economic Review, American Economic Association, vol. 75(5), pages 992-1015, December.
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    Cited by:

    1. N. AMINIAN & Cuauhtémoc CALDERON, 2006. "Japanese Direct Investment Determinants and the Prospects for Economic Cooperation in Northeast Asia," LEO Working Papers / DR LEO 829, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
    3. Fry, Maxwell J., 1996. "How foreign direct investment in Pacific Asia improves the current account," Journal of Asian Economics, Elsevier, vol. 7(3), pages 459-486.
    4. Goldstein, Morris, 1995. "Coping with too much of a good thing : policy responses for large capital inflows in developing countries," Policy Research Working Paper Series 1507, The World Bank.
    5. Jansen, Karel, 1995. "The macroeconomic effects of direct foreign investment: The case of Thailand," World Development, Elsevier, vol. 23(2), pages 193-210, February.
    6. Daveri, Francesco, 1995. "Costs of entry and exit from financial markets and capital flows to developing countries," World Development, Elsevier, vol. 23(8), pages 1375-1385, August.


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