Upstream Capital Flows: Why Emerging Markets Send Savings to Advanced Economies

Emerging market economic growth during the global recovery has exceeded performance in advanced economies. This differential has triggered a rush of private capital inflows to the emerging markets from investors seeking to maximize returns. While capital flows typically benefit receiving economies, sudden surges or stops may pose challenges for economic development.[1] The recent revival of private inflows has put pressure on prices and currencies of some emerging economies, leading them to impose capital controls. Moreover, some observers have argued that accommodative monetary policies in advanced economies are fueling inflows to emerging markets by making returns there seem even more appealing.