Capital flows to developing countries of the international financial system

Capital flows to developing countries of the international financial system

Generating financial stability requires remedying the international financial architecture

This article discusses, in the wake of the recent financial crisis (which has had a particularly severe effect on developing countries) led to wide ranging debate on international financial reform. The article indicates that this debate has led to the need to confront the implications of the huge growth of international capital movements. The effect of this has been the 'privatization' of external financing for developing countries.

This paper surveys the postwar evolution of the system of governance of the international financial system and principal trends in capital flows to developing countries in the last few decades. These set the stage for a selective review of appropriate policy responses to international financial instability.

The article indicates that appropriate policy responses to generate international financial stability, lies in remedying institutional and structural weaknesses in the international financial architecture through such means as:

  • transparency, disclosure and early warning systems
  • financial regulation and supervision
  • surveillance of national policies
  • an international lender of last resort
  • orderly debt workouts

[author]

  1. How good is this research?

    Assessing the quality of research can be a tricky business. This blog from our editor offers some tools and tips.