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Frontier and Emerging Markets: A Perspective from Portfolio Flows and Financial Integration

Author

Listed:
  • Nordine Abidi

    (European Central Bank)

  • Burcu Hacibedel

    (International Monetary Fund)

  • Mwanza Nkusu

    (International Monetary Fund)

Abstract

This paper investigates to what extent low-income developing countries (LIDCs) characterized as frontier markets (FMs) have begun to be subject to capital flows dynamics typically associated with emerging markets (EMs). Using a sample of developing countries covering the period 2000–14, we show that: (i) average annual portfolio flows to FMs as a share of gross domestic product (GDP) outstripped those to EMs by about 0.6 percentage points of GDP; (ii) during years of heightened stress in global financial markets, portfolio flows to FMs dried up like those to EMs; and that (iii) FMs have become more integrated into international financial markets. Our findings confirm that, in terms of portfolio flows, FMs have become more similar to EMs than to the rest of LIDCs and are therefore more vulnerable to swings in global financial markets conditions. Accordingly, it is important to have in place frameworks to strengthen FMs’ resilience to adverse capital flows shocks.

Suggested Citation

  • Nordine Abidi & Burcu Hacibedel & Mwanza Nkusu, 2019. "Frontier and Emerging Markets: A Perspective from Portfolio Flows and Financial Integration," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(11), pages 19-45, January.
    • Handle: RePEc:sgm:jbfeuw:v:1:y:2019:i:11:p:19-45
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    File URL: http://www.wz.uw.edu.pl/portaleFiles/3842-journal-of-b/articles/jbfe_1_11_2019/JBFE_1(11)2019_2Abidi,Hacibedel,Nkusu_kor2.pdf2019_1Herman,Klemm_kor2.pdf
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    Cited by:

    1. Hajilee, Massomeh & Stringer, Donna Y. & Hayes, Linda A., 2021. "On the link between the shadow economy and stock market development: An asymmetry analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 303-316.

    More about this item

    Keywords

    Frontier Markets; Portfolio flows; Financial Integration; Balance of Payments Needs;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F3 - International Economics - - International Finance
    • G0 - Financial Economics - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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