ABSTRACT
This chapter discusses the principal facts, developments and policies that characterize the current episode of capital inflows to Asia and Latin America. It also discusses the determinants of capital flows to developing countries, with emphasis on the causes behind the heavy inflow of the 1990s. The chapter explains the macroeconomic effects of the inflows and examines whether a policy response might be useful. The factors that encourage or hinder international flows of capital can be categorized into those that are external to the economies receiving the flow and the factors internal to those economies. Several of these factors and trends interacted in the early 1990s to make the developing countries of Latin America and Asia fertile territory for the renewal of foreign lending. Sterilization has been, by far, the most popular policy response to capital inflows in both Latin America and Asia. The chapter provides some policy lessons and discusses areas for future research.
