Private capital flows have the potential to bring important investment benefits to developing countries. In reality, however, capital flows are concentrated towards a few countries, and are highly volatile. The first part of this paper discusses the latest developments in international capital flows and financial market regulation. The second section considers the impacts of capital instability and lack of regulation on poverty reduction. It argues that poor people are disproportionately affected by financial crises, while a lack of global governance of taxation and banking deprives governments and citizens of essential resources for development. The final section analyses the drivers and incentives underpinning financial market behaviour, which tend to undermine investment in developing countries. Throughout, the author makes proposals for policy change in support of enhanced volume, quality, and stability in private capital flows to developing countries.These include improved global regulation of capital flows and taxation, changes to the incentive structures governing capital investment, and swifter, more effective response to financial crises.