Financial flows supplement domestic saving, allowing more investment to be done in those countries where returns are highest; they buffer the variations over time between exports and imports; foreign direct investment brings the advantages of technological transfer; there are gains for savers from diversification; and, to complete the case for free capital flows, we should record the argument that even speculative capital flows can serve a beneficial purpose.3 Capital flows are generally supported by the economic profession, both academics and practitioners.
Open capital markets are part of the widely-accepted Washington Consensus (whose twin elements are that countries should deregulate, and should open their economies to the outside world), and are endorsed by the IMF.4 Why, then, does foreign capital flow rank as a central element in the Asian crisis? The short answer is: painful experience in the practical world.