ABSTRACT
FDI flows to East Asian countries were comparatively remarkably stable during the 1997/98 Asian fmancial crisis. Similarly, the resilience of FDI to fmancial crises was also evident during the 1994 Mexican fmancial crisis, and the Latin American debt crisis of the early-1980s. In sharp contrast, portfolio equity and debt flows, as well as bank loans, dried up almost completely during the same periods. In situations of international iliquidity, a country's consolidated fmancial system has short-term obligations in foreign currency in excess of foreign currency that the country has access on short notice. Under, such circumstances, FDI flows provide the only direct link between the domestic capital market in the host country and the world capital market at large. From this point of view then, the recent trends ofFDI are encouraging, particularly from the developing countries' perspective. For instance, FDI was third placed among capital flows during the 1960s, 1970s and early-1980s, when aid and commercial bank loans were larger. However, recent trends show that global flows of FDI have reached record levels in recent years, growing faster than merchandise trade, and representing the most important form of capital inflows for many developing countries. Nonetheless, this should not underscore the importance of portfolio investment and loans, which can be very handy particularly for the short-to medium-run.
