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Article: Indentifying the causes of capital flows.(Capital Inflows to Developing and Transition Countries - Identifying Causes and Formulating Appropriate Policy Responses)
- Article from:
- World Economic Outlook
- Article date:
- October 1, 1996
CopyrightCOPYRIGHT 1996 International Monetary Fund. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The causes of capital inflows can be usefully grouped into three major categories: autonomous increases in the domestic demand for money; increases in the domestic productivity of capital; and external factors, such as a fall in international interest rates.(1) The first two causes are examples of what in the literature are called "pull" factors; the last is an example of a "push" factor.
The dominant cause of the inflows and the prevalent exchange rate regime will determine the likely economic impact and the need, if any, for policy responses. Under a fully flexible exchange rate system, capital inflows (regardless of their cause) will lead to an appreciation of the ...