Capital Flows to Developing Countries. Does the Emperor Have Clothes?
This paper draws on papers written on the supply of capital flows for the WIDER project on Capital Flows to Emerging Markets since the Asian Crisis, extracting overall conclusions from them. This conclusions paper aims to understand how capital flows to developing countries have changed since the Asian and other crises. Furthermore, it attempts to deepen our understanding of how investors, lenders and other financial actors make their decisions to supply capital to developing countries, and how this decision-making influences or determines their main features, in particular their tendency to pro-cyclicality and short-termism. Finally, it makes policy proposals to deal with the two most problematic aspects of capital flows to developing countries: their current very low levels and their strong reversibility.