At present, most industrial countries maintain relatively few restrictions on capital outflows and provide some encouragement for direct investment in developing countries, through guarantee and insurance schemes and various forms of official financial support. The decline in the relative importance of direct investment in total capital flows to developing countries since the early 1970s is not due to any major change in such policies. It reflects changes in the structure of the international financial system over the last 15 years and, in particular, the greatly increased role of commercial banks in international financial intermediation. Nevertheless, an examination of policies of industrial countries toward direct investment in developing countries may suggest ways of encouraging higher levels of such investment.