Abstract
The paper analyses the nature, the determinants, and the impacts of net capital inflows surging in Thailand after the 1997 currency and financial crises. After the crises, the composition of the net capital inflows was changed from the ones dominated by short-term flows to direct foreign investment. However, in recent years, huge net inflows of short-term loans and portfolio investment have returned. While direct foreign investment found mostly in the manufacturing export sector gains from real depreciation of domestic currency, short-term loans and foreign investment in debt and equity were attracted by real exchange rate appreciation together with high returns on investing in Thailand as well as in the emerging Asian region as a whole. As a result of the surge of total net capital inflows, asset prices increased somewhat, foreign reserves grew rapidly as domestic currency appreciated both in nominal and real terms. The study suggests policies which seek to balance the impacts of capital inflows on real exchange rates and the accumulation of foreign reserves. An attempt should also be made to allow for capital to flow out more freely mitigating the adverse effects of the net capital inflow surges.