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Foreign capital in Latin America: A long-run structural Global VAR perspective

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  • Melisso Boschi

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Abstract

I study the determinants of capital .ows to Argentina, Brazil, and Mexico, assessing the relative importance of domestic and global factors. I estimate six VECM models, one for each Latin American country plus the Euro Area, Japan, and USA, and then embed them in a multi-country Global VAR. The cointegrating space is identified in terms of theoretical long-run relations linking net foreign assets (NFA) to the other variables of the model. The results show that in the long-run external prevail on domestic factors as determinants of the equilibrium behaviour of NFA, with the relative importance of each factor varying from one country to another. Generalized Impulse Response Functions (GIRF) and Forecast Error Variance Decomposition (GFEVD) provide overwhelming evidence that domestic shocks are predominantly responsible for the short-run dynamics of Latin American NFA. Although all previous studies focus on North-American economic influence, one striking result of this paper is that the US variables are by no means the main external factors affecting Latin American NFA. Quite on the contrary, Japanese and, to a lesser extent, European cyclical conditions explain a large proportion of Latin American NFA short-run behaviour.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 647.

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Date of creation: 19 Oct 2007
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Handle: RePEc:esx:essedp:647

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Cited by:
  1. Melisso Boschi & Massimiliano Marzo & Simone Salotti, 2013. "Domestic Versus International Determinants Of European Business Cycles: A GVAR Approach," CAMA Working Papers 2013-28, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Caporale, Guglielmo Maria & Girardi, Alessandro, 2013. "Fiscal spillovers in the Euro area," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 84.e1-84.e1.
  3. Melisso Boschi & Alessandro Girardi, 2008. "The Contribution Of Domestic, Regional And International Factors To Latin America'S Business Cycle," CAMA Working Papers 2008-33, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Guglielmo Maria Caporale & Alessandro Girardi, 2012. "Business Cycles, International Trade and Capital Flows: Evidence from Latin America," CESifo Working Paper Series 4006, CESifo Group Munich.

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