Highly mobile capital plays positive roles. However, it can have very problematic aspects. A successful economy offers high yields and profits to international investors. If these investors can find ways to enter these economies, or if their entrance is facilitated by capital account liberalisation, they will rush in. This surge of capital inflows will affect key macro-economic variables.
Banks tend to increase lending, lifting liquidity constraints.
As a result of these factors, individuals consume more, hence private companies increase their investment. The sum of these individual decisions has extensive macroeconomic implications. The current Balance of Payments account deteriorates, often quite rapidly, as both consumption and investment rise. Initially, this is not seen as a problem, as foreign lenders and investors are happy to continue lending, investing, or both, given high profitability combined with the perception of low risk, as they are going into what is broadly seen as a successful economy. Then, something changes.