CAPITAL FLOWS AND THE EFFICIENCY OF CONTROL MECHANISMS

Purpose - The purpose of this study is to investigate the reasons for sudden stop of capital flows in developing and underdeveloped countries and the efficiency of some control mechanisms. Methodology - In this study, based on the literature review, the fundemental changes of foreign capital flows in home countries, the main reasons causing outflow and the efficiency of basic control mechanisms are investigated theoritically. Findings- It is observed that at the starting point, there is a need of control mechanisms for short term capital flows in order to eliminate their negative effects on basic macroeconomic indicators. Conclusion- In our days, the acceleration of capital flows between countries causes debates on current economics theories and policies. Capital flows between countries mainly specified as ‘’hot money’’ may create severe problems for home countries since they may outflow suddenly for varied reasons. In conclusion, it can be said that in order to acquire a sustainable economic development and growth; some control mechanisms should be applied for foreign short term capital flows and internal resources and foreign direct investments should be encouraged