reform efforts implies that when the reform variable is removed, the sign of the fiscal surplus variable becomes negative, i.e., there is collinearity between regressors. The interpretation in this latter case is more straightforward - lower fiscal surpluses (higher deficits) are associated with larger official flows. The coefficient for OECD growth rate is significantly positive, suggesting that the supply of official savings may have been a positive function of the business cycle in industrial countries.

FDI, as we showed above, is the most important private capital flows for most countries. In this specification, FDI is dependent as before on the three major independent variables: reform efforts, EU-accession and reserve changes. Not surprisingly, as for all private capital flows, FDI is greatly influenced by reform efforts, as the t-statistic for the reform index is large. Lankes and Stern (1997), and Martin and Selowsky (1997) had already noted this. Lagged official flows are positively significant, suggesting again a signaling function of official flows.

Portfolio flows appear to be driven by a number of factors, some of which are collinear, thus leading to mostly insignificant coefficients when many variables are included. The best regression result is then also not very informative. Fiscal balance (lagged one period) now appears to increase portfolio flows, a finding different from the earlier regression where the opposite coefficient was found. Interestingly, the interest rates differential variable is not significant. As noted, not all of these relationships are robust to inclusion of other independent variables, in part likely due to the collinearity of the independent variables, but also because portfolio flows are relatively small and have occurred only in more recent years, thus leading to weaker relationships.

Lastly, we regressed the flow of short-term debt flows and commercial debt flows. As notecd, short-term debt has become a large share of private capital flows in recent years for a number of countries. Private debt flows and short-term debt flows appear to be driven by the same factors, except for reform efforts. The degree of reform matters in a positive way for comrnercial debt flows and negatively for short-term debt flows. The negative sign for shortterm flows, which differs from the results in Tables 4, could reflect that lenders were less willing to extend long-term funds, and relatively more willing to extend short-term funds, to countries which had undertaken less reform. Increases in reserves lead to larger commercial debt and short-term flows (the latter is insignificant, however). This suggests that creditworthiness also matters for these flows. Private debt flows appear to be substitutes to domestic private savings as the coefficients are negative. Lastly, OECD growth rates matter for short-term flows. We find no evidence of a push effect, as the coefficient for the LIBOR interest rates is insignificant; in other words, the decline in international interest rates has not stimulated commercial debt or short-term flows. Arbitrage factors, i.e., the interest differential, do not appear to have a significant effect on short-term flows, which is somewhat surprising.

In short, the overall results indicate that flows are driven for most countries by fundamental reforms and creditworthiness. The possibility of EU-accession has been an important determinant of private flows, especially FDI. For official flows, EU-accession seems to have lowered the need for official flows. Increased fiscal savings has led to higher volumes for most flows, while increased private savings have been associated with lower capital flows 22