Over the past 20 years, emerging market economies have experienced three large waves of net capital inflows. The first wave of net capital inflows started in the early 1990s and concluded with the Asian financial crisis in 1997.
The second wave began in 2003 and ended in 2008 when the global financial crisis began. The third wave resumed surprisingly quickly in early 2009. In Asia, thanks to low interest rates around the world, capital ran to high-return economies with the flows exceeding the pre-crisis level by early 2010.
Capital inflows deliver economic benefits and are highly welcome in emerging economies. They lower the costs of funding and improve living standards. Nonetheless, capital inflows often come with many undesired effects.
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