Investment and financial volatility in Latin America

Financial liberalization and the lifting of capital market restrictions have brought in foreign investment and made more financing available for investment projects, but at the same time have made it easier for financial crises originating in Latin America or elsewhere to spread. Such crises became more frequent in the 1990s, and as a result a more careful study was made of the impact of capital flow instability on investment. Hypotheses derived from theoretical procedures were checked against econometric exercises showing that capital flows have a positive impact, but that negative consequences arise when they are volatile. This work covered a large group of countries in the region.