The effects of the financial crisis that emerged in the US financial markets in the second half of 2007 and spread all around the world in a short period has been increasingly felt. The fact that the crisis oriented from the financial system as well as the confidence shock it created strengthened the prospects that the most important impact will be on the private capital flows. And the decrease in capital flows is expected to affect the economy of developing countries like Turkey.

It is observed that, in the upcoming period, healthy functioning of the economies of individual countries, which have become highly dependent to one another under the effect of globalization, requires significant amount of funds. Under this context, global policy coordination becomes critical in ensuring that the acquisitions from global economic integration during last two decades will not be lost. In a period where private capital flows decrease, it will be necessary to design mechanisms to transfer funds from one state to another and from the public sector to the private sector. There exists a risk that, in case the economics administrations of different countries do not act in coordination when introducing measures against the crisis, the interdependence between individual economies might deteriorate to pre-1990 levels. This is a significant threat both with respect to the development perspectives for developing countries and to the protection of the current welfare levels for developed countries.

This note evaluates how the capital movements towards developing countries evolved from 1970s to present and makes some inferences pertaining to the crisis environment. The close connection between the source of the economic growth ensured in developing countries and private capital flows pinpoints that pace of growth in many countries including Turkey will be highly limited in the upcoming period due to decreasing capital flows.

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