Literature survey on capital account management in low-income countries

Abstract

Over the last few years, the debate on private capital flows and their management has regained momentum. This paper surveys the literature on the following private capital flows-related issues, with a focus on low-income countries: (i) impact on growth; (ii) risks; (iii) capital account management tools; and (iv) effectiveness of different policy measures. Overall, the analysis confirms conventional wisdom according to which private capital flows (i.e. foreign direct investment, portfolio investment, cross-border bank lending), in some cases and under certain conditions, may carry important opportunities, but they are also a significant source of risks. Therefore, it is important to develop adequate and effective capital account management policy tools. This review is part of the ‘Financial regulation in low-income countries: Balancing inclusive growth with financial stability’project