ABSTRACT
The deep integration of developing countries into the global economy has many advantages and positive effects.
In particular, capital flows to developing countries have clear and important benefits. The benefits are especially clear for foreign direct investment, which is not only more stable, but also brings technological know-how and access to markets. Other external flows also have important positive micro-economic effects, such as lowering the cost of capital for creditworthy firms. At a macroeconomic level, foreign capital flows can complement domestic savings, leading to higher investment and growth; this latter positive macro-economic effect is very valuable for low-savings economies, but may be less clear for high-savings economies like those of East Asia.
