Global capital flows and development: A Survey

From a development perspective, capital flows can both provide significant benefits and entail significant costs. Consequently, the development impacts of capital flows do not readily lend themselves to simple generalizations. This survey considers the development benefits and costs of four kinds of capital flows: foreign direct investment, equity portfolio investment, bond finance, and commercial bank lending. The survey suggests that the development impacts of these flows are conditional on both their specific characteristics and the larger policy environments in which they take place. It claims short-term superiority for foreign direct investment and equity portfolio investment over bond finance and commercial bank lending, and offers a set of policy recommendations to make capital flows more development-friendly.