The past decade has witnessed a significant increase in cross-border capital flows and a pronounced shift in their … composition towards portfolio investment, with much of the capital under management by mutual funds or "collective investment … institutions" resident in OECD countries, as well as in offshore tax-free environments. These developments motivate countries to …

aggregate uncertainty. Gains from more efficient capital allocation and gains from risk sharing are accounted for simultaneously … quantitatively small, even for riskier and capital scarce emerging economies. These countries import capital for efficiency reasons … before exporting it for self-insurance, leading to capital ows and growth reversals along the transition. This opens the door …