Private capital flows, like foreign investment and debt, can impact the economy of developing countries. The study found that shocks to foreign investment are temporary, while debt shocks are permanent. Foreign investment can boost economic growth, but debt can hinder it. The quality of a country's financial system also plays a role in how effective these capital flows are. The East Asian financial crisis had a significant impact on these flows. Overall, unrestricted capital flows don't always lead to economic growth, and having strong institutions is crucial for positive outcomes.