The Transition from Official Aid to Private Capital Flows
Implications for a Developing Country
India’s capital account displays a sharp swing in external financing from official assistance to private capital transfers in the 1990s. This paper examines the implications of this transition for the country. An analysis of the private resource transfer reveals that unlike official flows, private capital flows are associated with real exchange rate appreciation, expansion in domestic money supply and stock market growth, liquidity and volatility. The paper concludes with a discussion on the implications of the transition for economic policy.