The Flow of Money

Sir: You should have been bolder in your claim that "over time capital inflows are becoming less risky and the collateral benefits more tangible" ("Economics focus,"April 12). An IMF study last year found that foreign direct investment and other non-debt capital flows boost economic growth without adverse side effects on economic volatility.

These flows grant collateral benefits of raising economic efficiency, developing the domestic financial sector, and disciplining macroeconomic policies. The IMF study found also that a cautious opening-up can spur the very institutional development needed to benefit from foreign capital. This worldwide experience may explain why, despite the advice of some academics that countries stay out of the waters of foreign capital, many are choosing to learn how to swim.

Simon Johnson, Director
Jonathan Ostry, Deputy Director
Research Department
International Monetary Fund
Washington, DC