ABSTRACT
This chapter provides evidence showing that commodity boom-related capital inflows contributed to the appearance of the Dutch Disease effects in eight Latin American commodity-producing countries. During the global commodity price boom of 2003–2013, foreign capital flows became an important source of finance for commodity-producing developing economies. Dutch Disease effects can be triggered by improvements in extraction technologies, by the discovery of new natural resource deposits, by a rise in global commodity prices and by boom-related foreign capital inflows. Capital inflows in the form of foreign direct investment, foreign portfolio investment and bank credits affect a recipient country’s balance of payments through its financial account and its current account. Surprisingly, the potential adverse impact of capital inflows on the current account of developing countries’ balance of payments has received comparatively little attention in the empiric academic literature.
