Volatility in international financial markets.

• Author: Rana, Roma
• Position: Developing Further an Open Financial System

"Since September 11th, there has been a global commitment towards discovering a multilateral solution to the war on terrorism. There is still much work to be done in the area of better global economic governance", said Stephany Griffith-Jones, Professor of the Institute of Development Studies at Sussex University, on releasing the report, "Capital Flow to Developing countries since the Asian Crises: How to manage their volatility", which is one of the twelve projects undertaken by the World Institute on Development Economic Research (WIDER).

WIDER, established by the United Nations University in Tokyo and based in Helsinki, Finland, is one of the leading research institutes devoted to development economics and provides a forum for professional interaction amongst economists from the United Nations, policy makers, scholars and other international organizations worldwide. Its work is carried out by staff researchers and visiting scholars and through networks of collaborating scholars and institutions around the world. The Institute recently organized a conference in New York, where participants discussed the increased volatility of the international financial market and the various aspects of international financial reform. WIDER, in collaboration with the UN Economic Commission in Latin America and the Carribbean (ECLAC) and the International Development Strategy (IDS), has attempted to provide a constructive approach to reduce the impact of the steep reduction of capital flow into the developing world.

Ms. Griffith-Jones, in her paper entitled "Capital flows to Developing countries", focused on how capital flows to these countries have changed since the Asian crises. The capital market had undergone extreme liberalization in the 1990s, which led to greater flows of private capital to the developing world. This took the form of stocks and bonds, which further broadened the class of global investor beyond banks and multinational corporations, to include individual investors and managed funds, as well as institutional investors such as pension funds, insurance companies, university endowments and foundations. These investors brought in increased capital flows, which in turn introduced greater exposure to the volatility of stock and bond prices in each developing country, and advanced capital markets. Prof. Griffith-Jones discusses at length how investors, lenders and other financial actors make their decisions to supply capital to developing...