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Development threshold, capital flows, and financial turbulence

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  • Ding, Ding
  • Jinjarak, Yothin

Abstract

We study capital flows in a panel of 130 countries, and derive the implications for the observed patterns of capital flows and capital controls before and into the crisis of 2008–11. We find that the size of capital flows is positively correlated with country's income level. In addition, capital flight has a non-linear relationship with the income level. Using the Hansen threshold estimation, we identify a three-stage threshold effect: for low-income countries (GDP per capita below US$ 3,000), capital flight increases as the income level rises; and only after the economy passes a threshold level (GDP per capita above US$ 5,000), capital flight declines with income. We conclude with a case study of Brazil and Korea, observing that the decisions to implement capital control measures tend to be pushed around by the feedbacks among economic growth, currency appreciation, and the global financial conditions.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 23 (2012)
Issue (Month): 3 ()
Pages: 365-385

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Handle: RePEc:eee:ecofin:v:23:y:2012:i:3:p:365-385

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Web page: http://www.elsevier.com/locate/inca/620163

Related research

Keywords: Capital flows; Capital flight; Economic development; Capital control; Financial liberalization; Financial crisis;

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References

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Cited by:
  1. Guo, Feng & Huang, Ying Sophie, 2013. "Identifying permanent and transitory risks in the Chinese property insurance market," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 689-704.
  2. Dungey, Mardi & McKenzie, Michael D. & Yalama, Abdullah, 2013. "The cross market effects of short sale restrictions," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 53-71.
  3. Ellyne, Mark & Chater, Rachel, 2013. "Exchange Control and SADC Regional Integration," MPRA Paper 46648, University Library of Munich, Germany.

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