The relationship between net private capital flows and economic growth in emerging Asian economies

Net private capital flows (Foreign Direct Investment (FDI), Portfolio Investment and private credit flows) to emerging market economies declined significantly after the 1997 Financial Crisis. In 2002, the world's net private capital flows to emerging markets declined to the lowest level in the last decade. In 2003, the net private capital flows was expected to increase. However it remains subdued. Recent research focusing on net private capital flows to emerging markets indicates that the majority of these countries eventually converge to higher economic growth paths. In addition, Perrault (2002) asserted that the linkage between economic growth and net private capital flows in emerging market economies could also be the result of the reverse causation. i. e. economic growth caused an increase in net private capital flows. More likely, it is a combination of both factors: capital flows are higher when economic growth is strong but capital inflows are also required for economic growth to increase. In this paper, we take an exploratory investigation into the relationship between the economic growth and net private capital flows to the following Emerging Asian Market viz South Korea, Indonesia, Malaysia, Thailand and Philippines over the period from 1980 to 2001.