Global Development Finance 2006

The 2006 Global Development Finance report came out today.

Net private capital flows to developing countries reached a record high of $491 billion in 2005, driven by privatizations, mergers and acquisitions, external debt refinancing, as well as strong investor interest in local-currency bond markets in Asia and Latin America… The surging flows, including record bank lending and bond issuance, among others, coincided with 6.4-percent economic growth in the developing world last year, more than double the 2.8-percent growth in developed countries.

South-South investment continues to grow, reaching $47bn in 2003, up from $14bn in 1995, and accounted for 37% of developing countries' total FDI. But as the FT points out, it's not all good news:

Volatility in emerging markets and fears of a flight of foreign capital have come at a “critical” time for developing countries’ financial markets… Record amounts of money flowed into developing economies last year… [but] recent sharp market falls, in particular last week, have intensified investor nervousness about the fragility of these markets… The report also warns of the risks posed by the surge in capital flows, not least the risk of asset price bubbles. Global inflows into emerging market investment funds had already set an annual record by March this year, but there are concerns that the money flowing into local stock markets could be concentrated in a few better-known companies.

See the press releases.

Update: perhaps also of interest, Barry Eichengreen on the future of global financial markets and Morris Goldstein on what the next emerging-market financial crisis might look like.

Update: Podcast too, via Paul.