Promoting Private Capital Flows and Handling Volatility

Role of National and International Policies

image of Promoting Private Capital Flows and Handling Volatility

Report of a Commonwealth Working Group that considers the role of national and international policies in encouraging private capital flows for investment. The Working Group concluded that, in general, private capital flows can bring notable benefits for economic development by increasing growth and investment.



Handling Volatility of Private Capital Flows

The experiences of countries who have received large capital inflows during the 1990s indicate two potential problems: sudden large surges of capital inflows and equally sudden slowdown or cessation of inflows, or outflows. The magnitude of these flows can be as large as 4 to 5 percent of GDP on an annual basis. Reversals of flows can also be very substantial if investors lose confidence in domestic macroeconomic policies, as was the case in Mexico, Turkey, Venezuela, Argentina, Brazil and Thailand.


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