Global Liquidity and Financial Flows to Developing Countries: New trends in emerging markets and their implications C.P. Chandrasekhar

This paper attempts to examine the factors responsible for the recent revival and surge in capital flows into developing countries and the qualitative changes in financial integration that are accompanying this surge. The paper also looks at the impact that this surge is having on financial volatility and vulnerability, macroeconomic management and growth, in countries that have been “successful” in attracting such flows. It argues that post financial liberalisation, supply side factors have primarily caused the surge while the resultant changes in the financial structure has implications for the accumulation of risk and vulnerability to financial crisis in markets where agents tend to herd.

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(This paper was originally prepared as part of the G24 Working Paper Series.)