Determinants of Capital Flows to the New EU Member States Before and During the Financial Crisis
AbstractSummary for non-specialistsThis paper looks at capital flows to the new EU Member States from Central and Eastern Europe (NMS10) during the last decade. Firstly, it analyses the role of various types of foreign capital flows â€“ direct investment, portfolio investment, financial derivatives and other types of flows (mainly bank loans) â€“ over time and across countries. Secondly, it explores the determinants of capital flows to the NMS10, distinguishing between factors relating to the external economic and financial environment ("push factors") and factors specific to the recipient NMS ("pull factors"). The econometric analysis shows that external determinants have been important in explaining capital flows to the NMS10. In particular, we find a strong role for euro area interest rates, business cycle, and risk sentiment. At the same time, the ability of the NMS10 to attract foreign capital has been also influenced by domestic economic and financial conditions and policies. Risk sentiment appears to be a robust driver for both the common component of aggregate capital flows to NMS10 and of flows to individual countries. Overall, these results suggest a need for caution on the part of NMS in borrowing too heavily during periods of favourable external financial conditions. As the financial crisis has shown, this increases their vulnerability to a sudden reversal in the availability of financing, which can be largely driven by factors beyond their control.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 425.
Length: 32 pages
Date of creation: Sep 2010
Date of revision:
Contact details of provider:
Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels
Fax: +32 2 298.08.23
Web page: http://ec.europa.eu/economy_finance/index_en.htm
More information through EDIRC
Hobza Mourre structural reform Europe 2020 2020 QUEST III growth employment;
Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1992.
"Capital Inflows and Real Exchange Rate Appreciation in Latin America,"
13843, University Library of Munich, Germany.
- Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America," IMF Working Papers 92/62, International Monetary Fund.
- Koralai Kirabaeva & Assaf Razin, 2009.
"Composition of International Capital Flows: A Survey,"
NBER Working Papers
15599, National Bureau of Economic Research, Inc.
- Koralai Kirabaeva & Assaf Razin, 2011. "Composition of International Capital Flows: A Survey," Working Papers 142011, Hong Kong Institute for Monetary Research.
- Kirabaeva, Korolai & Razin, Assaf, 2010. "Composition of International Capital Flows: A Survey," CEPR Discussion Papers 7664, C.E.P.R. Discussion Papers.
- Koralai Kirabaeva & Assaf Razin, 2010. "Composition of International Capital Flows: A Survey," Working Papers 10-33, Bank of Canada.
- Fiess, Norbert, 2003. "Capital flows, country risk, and contagion," Policy Research Working Paper Series 2943, The World Bank.
- Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2008.
"Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration,"
6747, Inter-American Development Bank.
- Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration," Research Department Publications 4581, Inter-American Development Bank, Research Department.
- Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance Of Balance-Sheet Effects And Financial Integration," NBER Working Papers 14026, National Bureau of Economic Research, Inc.
- Yung-Hsiang Ying & Yoonbai Kim, 2001. "An Empirical Analysis on Capital Flows: The Case of Korea and Mexico," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 954-968, April.
- Leonardo Gambacorta, 2009. "Monetary policy and the risk-taking channel," BIS Quarterly Review, Bank for International Settlements, December.
- Herrmann, Sabine & Winkler, Adalbert, 2008.
"Financial markets and the current account: emerging Europe versus emerging Asia,"
Discussion Paper Series 1: Economic Studies
2008,05, Deutsche Bundesbank, Research Centre.
- Sabine Herrmann & Adalbert Winkler, 2009. "Financial markets and the current account: emerging Europe versus emerging Asia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(3), pages 531-550, October.
- Paolo Mauro & Andrei A. Levchenko, 2006. "Do Some Forms of Financial Flows Help Protect From Sudden Stops?," IMF Working Papers 06/202, International Monetary Fund.
- Erik Berglof & Yevgeniya Korniyenko & Alexander Plekhanov & Jeromin Zettelmeyer, 2010. "Understanding the Crisis in Emerging Europe," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(6), pages 985-1008, September.
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2007.
"Capital Flows in a Globalized World: The Role of Policies and Institutions,"
in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 19-72
National Bureau of Economic Research, Inc.
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Working Papers 11696, National Bureau of Economic Research, Inc.
- Chuhan, Punam & Perez-Quiros, Gabriel & Popper, Helen, 1996. "International capital flows : do short-term investment and direct investment differ?," Policy Research Working Paper Series 1669, The World Bank.
- Faruk Balli & Syed Abul Basher & Hatice Ozer Balli, 2013.
"International Income Risk-Sharing and the Global Financial Crisis of 2008- 2009,"
CAMA Working Papers
2013-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Balli, Faruk & Basher, Syed Abul & Balli, Hatice Ozer, 2013. "International income risk-sharing and the global financial crisis of 2008–2009," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2303-2313.
- Balli, Faruk & Basher, Syed Abul & Balli, Hatice Ozer, 2013. "International Income Risk-Sharing and the Global Financial Crisis of 2008--2009," MPRA Paper 43720, University Library of Munich, Germany.
- Aneta Krstevska & Magdalena Petrovska, 2012.
"The economic impacts of the foreign direct investments: panel estimation by sectors on the case of Macedonian economy,"
Journal of Central Banking Theory and Practice,
Central bank of Montenegro, vol. 1(2), pages 55-73.
- Aneta Krstevska & Magdalena Petrovska, 2011. "The economic impacts of the foreign direct investments: panel estimation by sectors on the case of Macedonian economy," Working Papers 2011-02, National Bank of the Republic of Macedonia.
- Jarko Fidrmuc & Reiner Martin, 2011. "FDI, Trade and Growth in CESEE Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 70-89,112-1.
- Lane, Philip R. & McQuade, Peter, 2013.
"Domestic credit growth and international capital flows,"
Working Paper Series
1566, European Central Bank.
- Philip Lane & Peter McQuade, 2013. "Domestic Credit Growth and International Capital Flows," The Institute for International Integration Studies Discussion Paper Series iiisdp428, IIIS.
- Sandra M. Leitner & Robert Stehrer, 2012. "Labour Hoarding during the Crisis: Evidence for selected New Member States from the Financial Crisis Survey," wiiw Working Papers 84, The Vienna Institute for International Economic Studies, wiiw.
- Beáta Farkas, 2012. "The Impact of the Global Economic Crisis in the Old and New Cohesion Member States of the European Union," Public Finance Quarterly, State Audit Office of Hungary, vol. 57(1), pages 53-70.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO).
If references are entirely missing, you can add them using this form.