The new wave of private capital inflows: Push or pull?

This paper studies the determinants and sustainability of the widespread private capital inflows to middle-income countries after 1989. The key question is whether these flows are mostly 'pulled' by attractive domestic conditions or 'pushed' by unfavorable conditions in developed countries. An analytical model focusing on country risk is developed and used empirically. It is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates, and that therefore its importance as a proximate cause does not support the 'pull' interpretation. All things considered, in most countries the key answer that emerges is 'push'.