Abstract:

The increase -after the crisis- in capital movements which drastically decreased due to 2008 global economic crisis has put the clock back on this issue. Countries that are underdeveloped in terms of domestic savings, technology and foreign exchange need a foreign capital in order to finance the development and thus, to bridge the gaps with the developed countries. In this study, the macroeconomic consequences of capital movements towards the developed countries have been examined. This study particularly focusing directly on foreign capital investments and portfolio investments has discussed the development and determinants of capital movements and the positive and negative effects on the economy. Developing countries should increase productivity by the reason of providing technology and knowledge transfer and should place a great emphasis on foreign direct capital investments that promote economic growth and have a minimum possibility of sudden return. On the other hand, portfolio investments, which are the speculative and variable investment components, make up risky and problematic way of solving undercapitalization problem of developing countries

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