Should Rigorous Controls Be Imposed on Transnational Capital Flows?

I. INTRODUCTION

Transnational capital flow is a term coined to describe the movement of capital across national

boundaries. International financial and capital flows have experienced a phenomenal upsurge during the

late twentieth century. According to the latest estimates, foreign exchange to the tune of one to two

trillion US dollars is transacted internationally every day. Significantly, exchanges in trade and services

constitute only a tiny fraction of these transactions, while the majority is composed of movement of shortterm

capital and foreign investment. While the benefits of such flows are manifold, there are negative

side-effects too. Unfettered movement of capital in developing countries has triggered off several

economic crises in recent history and there is a compelling case for tempering such flows through

imposition of adequate controls.

I.i Types of Global Capital Flows

Transnational capital flows can be broadly classified into the following categories:

1) Foreign Direct Investment (FDI): Acquisition of companies, physical investment in plants and

equipment.

2) Foreign Portfolio Investment: Investments in capital markets.

3) Loans and credit issued