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The Composition of Capital Flows: Is South Africa Different?

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Author Info
Norbert Funke
Faisal Ahmed
Rabah Arezki

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Abstract

Over the past decade, South Africa has attracted relatively little foreign direct investment (FDI), but considerable amounts of portfolio inflows. In this context, the objective of the paper is twofold: to identify the determinants of the level and composition of capital flows to emerging markets and to draw policy conclusions for South Africa. We estimate a dynamic panel for up to 81 emerging markets using GMM (Generalized Method of Moments) techniques. The results suggest that further trade and capital control liberalization would increase the share of FDI. Additionally, a reduction in exchange rate volatility would affect the composition of capital flows in favor of FDI.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/40.

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Length: 28 pages
Date of creation: 11 Mar 2005
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Handle: RePEc:imf:imfwpa:05/40

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Keywords: Capital flows ; South Africa ; Exchange rates ; Foreign investment ;

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