Does the revival of international private capital flows mean the end of aid? An analysis of developing countries' access to private capital

Despite the collapse of private flows in the years following the debt crisis, since 1987 international flows of private capital have been increasing at a remarkable rate. Some argue that these trends spell "the end of aid" as private capital will take its place. But flows of private capital have been highly concentrated in a small number of countries, with African countries in particular having apparently little access. This paper presents an analysis of the determinants of private capital flows with a data set covering many low income and highly indebted countries. The results suggest that such countries have a low probability of being able to gain access to sizeable quantities of private capital so that aid remains necessary to finance their requirement for external finance. (C) 1998 Elsevier Science Ltd. All rights reserved.