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Discuss the implications short-term capital flows into emerging countries have on the financial stability and the economic development of those countries.
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Discuss the implications short-term capital flows into emerging countries have on the financial stability and the economic development of those countries. The impact and desirability of international capital flows on emerging markets' financial and economic development is a subject of extensive debate. The macroeconomic policies and the globalization of financial markets in developing countries have changed the dynamics of these flows. Prior to the 1990s, portfolio capital flows went relatively unnoticed because most foreign capital inflow to emerging markets took the form of direct investment. (Campion M K, 2001) However, with higher levels of portfolio capital mobility, the recipient countries' economies were affected. The overall impact of this new situation for recipient economies is however, rather ambiguous. On the one hand, capital flows provide countries with financial resources that help them bridge the gaps between domestic saving and investment, and between foreign exchange available and foreign exchange required; and they may...
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