Capital Flows To Third World Countries
This paper begins by examining the pattern of capital flows first to low-income countries, and
then to emerging economies. In both cases, we see a dramatic collapse in the last several
years. The evolving determinants of these trends in FDI flows (the principal category of
private flows to low-income countries) and other capital flows are analysed. The behaviour
of flows to emerging economies heavily influences both present and potential future flows to
low-income countries. The paper concludes with the policy implications at both source
countries and low-income recipient countries.
September 2002
* Institute of Development Studies, Sussex University
** London School of Economics
QEH Working Paper Series ? QEHWPS89 Page 2
Table of Contents
I Introduction
II New pattern and sharp decline of private flows
III Policy implications
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I Introduction
Since the Asian crisis, there has been a collapse in private capital flows to low-income
developing countries, and emerging economies alike, and sharp changes in the
composition of these flows. According to World Bank data, net private flows to lowincome
countries dropped from $32bn in 1997 to just $2bn in 1999, rising slightly to
$4bn in 2000 (see Table 1 below). Net private capital flows to all emerging
economies declined since 1997 and were practically zero in 2000 and 2001, according
to IMF World Economic Outlook data shown in Table 2.
Insufficient emphasis has been placed as yet by analysts and policy- makers on the
nature, causes and policy implications of these large changes. A key question is
whether these changes are mainly structu ...