International capital flows have long been a major source of economic growth. Savings in higher-income countries have financed high-yielding investments in low-income countries, generating benefits for all. After World War II, capital flows under the Marshall Plan drove the rapid reconstruction of Europe, and after those countries recovered, they extended their own foreign aid and other official financial flows to the developing world. Private financing also increased substantially; by the 1990s, it accounted for over half of total capital flows to developing countries.
Some of these flows led to spectacular results. South Korea was one of the poorest countries in the world in the 1950s, with a savings rate of only 3% of GDP. But after implementing major policy reforms, it was able to avail itself of large capital inflows to finance investments with very high rates of return. It has since become an advanced economy.
