After being excluded from world capital markets during the debt crisis, many developing countries have experienced large capital inflows during the past five years. The challenges that these inflows pose for domestic policy in recipient countries have generated a substantial literature. This article presents an overview of that literature, describing the characteristics of the new inflows, analyzing the policy issues they raise, assessing their causes and likely sustainability, and evaluating potential policy responses. The desirable policy response is tied to characteristics of the flows themselves as well as to the characteristics of the recipient economy.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Documents published in the IDB working paper series are of the highest academic and editorial quality. All have been peer reviewed by recognized experts in their field and professionally edited. The views and opinions presented in this working paper are entirely those of the author(s), and do not necessarily reflect those of the Inter-American Development Bank, its Board of Executive Directors or the countries they represent. This paper may be freely reproduced provided credit is given to the Inter-American Development Bank. Terms of use: Documents in4 Abstract * This paper combines development and growth accounting exercises with economic theory to estimate the relative importance of total factor productivity and the accumulation of factors of production in the economic development performance of Latin America. The region's development performance is assessed by contrast with various alternative benchmarks, both advanced countries and peer countries in other regions. The paper finds that total factor productivity is the predominant factor: low productivity and slow productivity growth, as opposed to impediments to factor accumulation, are the key to understanding Latin America's low income relative to developed economies and its stagnation relative to other developing countries. While policies easing factor accumulation would help somewhat in improving productivity, for the most part, closing the productivity gap requires productivity-specific policies.JEL Classification: O11, O47

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

The outlook for economic development for an important group of middle-income countries has once again been buoyed by substantial private capital inflows in the 1990s. As in the 1970s, this development has been met with cautious optimism. This empirical study finds that although debt reduction and policy reforms in debtor countries have been important determinants of renewed access to international capital markets, changes in international interest rates have been the dominant factor. We calculate the effects of changes in international interest rates for a "typical" debtor country. We conclude that increases in interest rates associated with a business cycle upturn in industrial countries could depress the secondary market prices of existing debt to levels inconsistent with continued capital inflows. The turnaround in the external financial position of many debtor countries since 1989 has been phenomenal. Improvement is particularly impressive in countries that had completed Brady Plan restructuring of their external debt at the time this article was prepared (Argentina, Costa Rica, Mexico, Nigeria, the Philippines, Uruguay, and Venezuela). In the first quarter of 1989 the external debt of these countries sold for an average price of only forty cents on the dollar and private capital inflows were largely restricted to concerted lending or interest arrears. Various plans for dealing with the debt overhang, including the Brady Plan announced on March 10,1989, were widely characterized as inadequate to restore access to international capital markets. Some observers, in fact, predicted that debtor countries might not return to private international capital markets for a generation (see U.S. Senate 1990). Today the recovery in real economic activity and capital formation in debtor countries is just beginning, but a financial recovery is well under way. These countries have experienced very large private capital inflows, real exchange rate appreciation, stock market booms, and dramatic increases in the prices of their external debt (Calvo, Leiderman, and Reinhart 1993). In some cases capital inflows have been associated with a return to resource transfers to these coun