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Effect of Policies on Capital Flows to Emerging Markets: Evidence from a Detailed Data Set

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  • Chayawadee Chai-anant

    (Bank of Thailand)

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    Abstract

    This study constructs a detailed data set of capital flow policies to estimate their effectiveness in 14 emerging markets. The components of quarterly capital flows are used to test the sensitivity of capital flows to push and pull factors as well as liberalization and control policies. The results reveal that capital inflows are sensitive to external and domestic factors, while there is little evidence of policy effectiveness on the volume of capital flows. However, the composition of capital flows is significantly sensitive to policy implementation. The share of foreign direct investment is the most sensitive item, contradiction the previous findings that portfolio share significantly react to capital controls. The conflicting results are possibly explained by the subjectively of policy categorization and difference in the frequency of data in the estimation. The robustness check suggests that the flow in the two regions; Latin American and Asia behave differently, in which the Latin American results largely mimic the full sample estimation.

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    File URL: http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscusPaper/DocLip_discussion/dp052003chayawadee_thai.pdf
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    Bibliographic Info

    Paper provided by Economic Research Department, Bank of Thailand in its series Working Papers with number 2003-07.

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    Length: 65 pages
    Date of creation: Oct 2003
    Date of revision:
    Handle: RePEc:bth:wpaper:2003-07

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    Related research

    Keywords: capital flow policy; international investment; capital control;

    References

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    1. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
    2. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
    3. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
    4. Jose De Gregorio & Sebastian Edwards & Rodrigo O. Valdes, 2000. "Controls on Capital Inflows: Do they Work?," NBER Working Papers 7645, National Bureau of Economic Research, Inc.
    5. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    6. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
    7. Reinhart, Carmen & Montiel, Peter, 2001. "The Dynamics of Capital Movements to Emerging Economies During the 1990s," MPRA Paper 7577, University Library of Munich, Germany.
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