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Prospects Weekly: Developing countries continued to capture a rising share of global financial flows in 2010

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Developing countries continued to capture a rising share of global financial flows in 2010, a trend that became evident from the early-2000s. Resilience during the crisis and better growth prospects for emerging markets—built upon progress in capital-account liberalization and strengthened investment climates over the last decade—further increased the attractiveness of EM to international investors. Reflecting the relative strength of their economies, demand from developing countries accounted for much of the 15.7% increase in world trade volume growth in 2010. This was led by demand for capital goods—a sector of global activity still dominated by high-income countries, which buoyed their production recovery in 2010. The rise in global demand for capital goods and durable consumer goods has also led to a rebound in demand for inputs that feed these markets, including metals—supporting growth in low-income countries. China has been the chief driver of metals demand, eclipsing the OECD since 2009. http://www.worldbank.org/globaloutlook
The share of developing countries in global financial flows increased considerably in 2010, continuing a trend that began in the early 2000s. Progress in capital-account liberalization, improved macroeconomic conditions and a stronger investment climate, led financial markets to view developing countries as being increasingly less risky. The premium charged to developing country-borrowers has been declining, a process that the events of the past two years have accelerated. For example, the Euro Area turmoil of 2010 saw risk premiums on the debt of several high-income countries rise, while those of developing countries did not. Further, the resilience of developing countries during the crisis, plus their stronger growth prospects increased their attractiveness as a destination for financial (and real) investment. http://go.worldbank.org/EXJ0ROZUM0 
Much of the increase in world trade in 2010 reflected rapidly growing demand from developing countries, particuarly for capital goods—a sector of global activity still dominated by high-income countries. Three quarters of the increase in high-income country exports during the first half of 2010 were sold to developing countries. With the start of recovery and a firming of demand, businesses began replacing depleted inventories, and consumers stopped holding back on some big-ticket outlays, such as autos. These factors supported the rebound of capital goods and consumer durables production, which account for the bulk of global trade. The surge in capital goods exports has been an important contributor to recovery. In the United States equipment and software spending contributed 1.2%, 1.5% and 1% to GDP growth in Q1-, Q2- and Q3, respectively (2010). http://go.worldbank.org/01Z6RAZZ90 

Increases in the demand for capital goods and durable consumer goods also led to a rebound in demand for inputs that feed these markets, including metals—supporting recovery in low income countries.  China has been the chief driver of metal demand over the past decade and during the recovery. Chinese apparent consumption surged 20% in 2009 and 10% in the first 10 months of 2010. Metal production has increased in step with demand, but supplies for a few metals have tightened, notably for copper and tin, and stocks declined in 2010. All other base metals remain in surplus and stocks are relatively high. High metal prices buoyed export revenues for low-income countries, including Zambia, where revenues rose by 45% in 2010 on higher copper prices. http://go.worldbank.org/DTOIJPZQG0

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