ABSTRACT
One of the most important developments in the financial services industry in the last decade or so has been the massive increase in the volumes of cross-border capital flows, both between developed countries and between developed and developing countries. Although there was a substantial decline in capital flows to developing countries during most of the 1980s, the 1990s witnessed the resurgence of capital flow to many developing countries. IMF (1999: 1) cites some interesting figures: ‘Net private capital flows to developing countries trebled to more than $150 billion a year during 1995-7 from roughly $50 billion a year during 1987-9. At the same time the ratio of private capital flows to domestic investment in developing countries increased to 20 per cent in 1996 from only 3 per cent in 1990.’ To a large extent these increased flows, which no doubt contributed to the increased globalization of the industry, were the result of financial reforms that were implemented as part of international agreements. In the case of the European Union (EU), the creation of the single market led to the abolition of all remaining capital controls in the late 1980s. In the case of emerging market economies these reforms were usually implemented with the encouragement of the Bretton Woods institutions, in some cases being part of structural adjustment programmes.
