International capital flows to emerging and developing countries: national and global determinants (original) (raw)
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Trends and Volatilities in International Capital Flows for Developing Countries
Flows of international capital to developing countries have fluctuated substantially over the last three decades. Empirical evidence concerning the main causes of international capital flows is, in general, mixed. There is strong support for the 'push' view that external factors have been important in driving capital inflows to emerging markets. However, the apparent importance of 'push' factors does not preclude the relevance of 'pull' phenomena. 'Pull' factors may be necessary to explain the geographic distribution of capital flows over time. This paper compares trends and volatilities in international capital flows for nine representative developing countries. During the 1970-90, international capital flows were mainly in the form of bank lending directed to governments and/or to the private sector. In the 1990s, capital flows took the form of foreign direct investment and portfolio investment, including bond and equity flows. The purpose of the paper is to examine the nature of foreign direct investment and portfolio investment, both of which help to finance investment and stimulate economic growth in the developing world.
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SSRN Electronic Journal, 2013
We examine the determinants of net private capital in ‡ows to emerging market economies. These in ‡ows are computed from quarterly balance-of-payments data from 2002:Q1 to 2012:Q2. Our main …ndings are: First, growth and interest rate di¤erentials between EMEs and advanced economies and global risk appetite are statistically and economically important determinants of net private capital in ‡ows. Second, there have been signi…cant changes in the behavior of net in ‡ows from the period before the recent global …nancial crisis to the post-crisis period, especially for portfolio in ‡ows, partly explained by the greater sensitivity of such ‡ows to interest rate di¤erentials and risk aversion. Third, capital control measures introduced in recent years do appear to have discouraged both total and portfolio in ‡ows. Fourth, in the pre-crisis period, there is some evidence that greater foreign exchange intervention to curb currency appreciation pressures brought more capital in ‡ows down the line, but we cannot identify such an e¤ect in the post-crisis period. Finally, we do not …nd statistically signi…cant positive e¤ects of unconventional U.S. monetary expansion on total net EME in ‡ows, although there does seem to be a change in composition toward portfolio ‡ows. Even for portfolio ‡ows, U.S. unconventional policy is only one among several important factors. JEL classi…cation: F3, E5.
The Metamorphosis of Finance and Capital Flows to Emerging Market Economies
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The decade after the Great Financial Crisis of 2007–09 brought significant changes in the volume and composition of capital flows in the global economy. Portfolio investments and other non-bank financial intermediaries are responsible for an increasing share of foreign capital flows, while banking flows have shrunk in relative terms. This paper considers the implications of such a metamorphosis of finance for capital flows to emerging market economies (EMEs). After examining capital flows from the global financial crisis to the 2020-21 pandemic crisis, we analyze the extent to which a normalization of monetary policies in advanced economies may lead to shocks in those flows, as well as why exchange rate fluctuations between the U.S. dollar and other major currencies can affect capital flows to EMEs. Finally, we assess the range of policy instruments that EME policymakers tend to resort to manage risks derived from capital-flow volatility.
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1999
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The explosion and dramatic reversal of capital fl ows to emerging markets in the 1990s have ignited a heated debate, with many arguing that globalization has gone too far and that international capital markets have become extremely erratic. In contrast, others have emphasized that globalization allows capital to move to its most attractive destination, fuelling higher growth. This paper reexamines the characteristics of international capital fl ows since 1970 and summarizes the fi ndings of research of the 1990s on the behaviour of international investors as well as the short-and long-run effects of globalization on fi nancial markets and growth.
Procedia Computer Science, 2013
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Econometrics of the Real Effects of Cross-Border Capital Flows in Emerging Markets
This study examines the effects of cross-border flows - FDI, FPI, and FBL - on growth and savings rates using data on 56 countries from 1969 through 1998. Very generally, few flow measures are significant determinants of real variables. However, consideration of the initial level of financial depth - including measures of private credit, bank lending, and stock market development - seems to produce more significant results, as some data indicate that flows have a more deleterious (benevolent) effect in countries with lower (higher) levels of development. Moreover, extreme bound analysis (EBA) of significant results indicates that these findings are robust.
Financial development, international capital flows, and aggregate output
Journal of Development Economics, 2014
ABSTRACT We develop a tractable two-country overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital flows: Financial capital flows from relatively poor to relatively rich countries, while foreign direct investment flows in the opposite direction; net capital flows go from poor to rich countries; despite its negative net international investment positions, the United States receives a positive net investment income. International capital mobility affects output in each country directly through the size of domestic investment and indirectly through the aggregate saving rate. Under certain conditions, the indirect effect may dominate the direct effect so that international capital mobility raises output in the poor country and globally, although net capital flows are in the direction to the rich country. We also explore the welfare and distributional effects of international capital flows and show that the patterns of capital flows may reverse along the convergence process of a developing country. Our model adds to the understanding of the costs and the benefits of international capital mobility in the presence of domestic financial frictions.