The Capital Flow Paradox HEINER FLASSBECK Director Division on Globalization and Development Strategies

Surplus countries have lower relative income than deficit countries Source: Prasad et al 2007

Current account balance of developing countries in per cent of GDP (1980-2005)

Current account balance (Arge-Bras I-S.xls, Brazil) Source: National sources.

Global imbalances involve the United States and a small number of big surplus countries including Japan, Germany, China and major oil exporters Current-account balances as a percentage of GDP, 1980-2005

Current Account and Growth Source: Prasad et al 2007

Current account, Growth, and Investment Ratios Source: Prasad et al 2007

Number of developing countries with current account deficits 1996, 17 out of the 22 countries of the region had a current account deficit. in 1998 all 19 Latin American countries had an external deficit. After the 1997 and 1998 crises, declined number of deficit countries and each region is running a current account surplus as a group. From a strong reliance on foreign capital inflows to a policy of preserving favourable monetary condition, such as slightly undervalued exchange rate and low interest rates and thereby favouring growth by stimulating export demand, competitiveness and productive investment Source: UNCTAD

Current Accounts per Country Group Source: UNCTAD

Capital Accumulation, Trade, Industrialization and Growth Broaden Size of markets allowing for economies Source of foreign exchange for imported capital goods Investment Exports Add production capacity, productivity Improve competitiveness and access to new markets

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