What factors appear to drive private capital flows to developing countries? and how does official lending respond?

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What factors appear to drive private capital flows to developing countries? and how does official lending respond?, Volume 1

Author:	Dasgupta, Dipak; Ratha, Dilip;	Collection Title:	Policy, Research working paper ; no. WPS 2392
Date Stored:	2000/08/19	Document Date:	2000/07/31
Document Type:	Policy Research Working Paper	Language:	English
Report Number:	WPS2392	Sub Sectors:	Macro/Non-Trade
SubTopics:	Achieving Shared Growth; International Terrorism & Counterterrorism; Economic Theory & Research; Macroeconomic Management; Banks & Banking Reform; Economic Adjustment and Lending; Financial Intermediation	Volume No:	1

Summary: The authors study what drives private capital flows to developing countries, as well as the apparent response of official lending for the years 1978-97. Econometric results reveal that non-foreign direct investment portfolio flows to a country tended to rise in response to: 1) An increase in the current account deficit. 2) A rise in foreign direct investment flows. 3) Higher per capita income. 4) Growth performance. Once those variables were accounted for, private flows did not seem to be influenced by location, and regional factors. In addition, private capital flows (whether foreign direct investment or not) seem to respond positively (with a one-year lag) to World Bank lending commitments. By far the most important determinant of official lending to a developing country, seems to be the external current account balance, or a change in international reserves in the country. Official flows - including World Bank lending - appear to have played a stabilizing (or counter-cyclical) role in response to the volatility of private capital flows, and fluctuations in commodity prices, and GDP growth. (The stabilizing effect is weak, as official flows are only one-tenth of total long-term flows).


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File Type		Description	File Size (mb)

	PDF 28 pages	Official version*	1.96 (approx.)
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	PDF 23 pages	WPS2392	0.10

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