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Crises, portfolio flows, and foreign direct investment: An application to Turkey

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  • Uctum, Merih
  • Uctum, Remzi

Abstract

We analyze how financial and economic crises affect the relation between the components of capital flows and their determinants in an emerging economy. Our results suggest that the composition of capital flows matters, crises can explain the volatility of portfolio flows and foreign direct investment, and modeling them as endogenous breakpoints improves the results considerably. By using data from the Turkish economy, we estimate these breakpoints together with the parameters of the model and find that they correspond to international and domestic crises that hit the country. Although both components are affected by similar crises, direct investment reacts strongly to the domestic crisis, while portfolios flows are more sensitive to global financial conditions. Breaks also have an effect on the significance and sign of determinants of each type of international investment. Evidence indicates changes in all coefficients in both investment types and suggests that analyses assuming parameter constancy lead to misleading results if they ignore the influence of endogenous breaks.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 35 (2011)
Issue (Month): 4 ()
Pages: 462-480

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Handle: RePEc:eee:ecosys:v:35:y:2011:i:4:p:462-480

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Keywords: Capital flows; Crises; Structural changes; Country risk;

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References

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Citations

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Cited by:
  1. Kamel ABDELLAH ( GREThA, CNRS, UMR 5113 & ISG, UNIVERSITE DE TUNIS) & Dalila NICET-CHENAF (GREThA, CNRS, UMR 5113) & Eric ROUGIER (GREThA, CNRS, UMR 5113), 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA 2012-21, Groupe de Recherche en Economie Théorique et Appliquée.

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