Capital Inflows and the Real Exchange Rate: A Comparative Study of Asia and Latin America
AbstractThe nexus of real exchange rate (RER) and capital inflows is examined through a comparative analysis of the experiences of emerging market economies in Asian and Latin America during the period 1985-2000. It is found that the degree of appreciation in RER associated with capital inflow is uniformly much higher in Latin American countries compared to their Asian counterparts, despite the fact that the latter experienced far greater foreign capital inflows relative to the size of the economy. The econometric evidence suggests that both the composition of capital flows and differences in the degree of response of RER to capital flows matter in explaining these contrasting experiences. While RER appreciation is a phenomenon predominantly associated with other (non-FDI) forms of capital inflows (OCFW), a given level of OCFW brings about a far greater degree of appreciation of the real exchange rate in Latin America where the importance of these flows in total capital inflow is also far greater. On the policy front, Asian countries seem to have used fiscal contraction and nominal exchange rate adjustment more effectively to cushion the RER against the appreciation pressure of capital inflows. There is, however, no evidence to suggest that sterilized intervention can generate a lasting impact on the real exchange rate.
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 The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2003-02.
Length: 34 pages
Date of creation: 2003
Date of revision:
Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Web page: https://crawford.anu.edu.au/acde/publications/
More information through EDIRC
real exchange rate; capital flows; foreign direct investment;
Other versions of this item:
- Prema-Chandra Athukorala & Sarath Rajapatirana, 2003. "Capital Inflows and the Real Exchange Rate: A Comparative Study of Asia and Latin America," The World Economy, Wiley Blackwell, vol. 26(4), pages 613-637, 04.
- NEP-ALL-2004-01-08 (All new papers)
- NEP-FIN-2004-01-08 (Finance)
- NEP-IFN-2004-01-08 (International Finance)
- NEP-MAC-2004-01-08 (Macroeconomics)
- NEP-SEA-2004-01-08 (South East Asia)
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.:
- Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996.
"Inflows of Capital to Developing Countries in the 1990s,"
Journal of Economic Perspectives,
American Economic Association, vol. 10(2), pages 123-139, Spring.
- Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
- Sebastian Edwards, 2000. "Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies," NBER Books, National Bureau of Economic Research, Inc, number edwa00-1.
- Robert E. Lipsey & Robert C. Feenstra & Carl H. Hahn & George N. Hatsopoulos, 1999.
"The Role of Foreign Direct Investment in International Capital Flows,"
in: International Capital Flows, pages 307-362
National Bureau of Economic Research, Inc.
- Robert E. Lipsey, 2000. "The Role of Foreign Direct Investment in International Capital Flows," NBER Working Papers 7094, National Bureau of Economic Research, Inc.
- Sebastian Edwards, 2000. "Introduction to "Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies"," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 1-12 National Bureau of Economic Research, Inc.
- Corden, W. Max, 1994. "Economic Policy, Exchange Rates, and the International System," OUP Catalogue, Oxford University Press, number 9780198774099.
- Anne O. Krueger, 1997.
"Trade Policy and Economic Development: How We Learn,"
NBER Working Papers
5896, National Bureau of Economic Research, Inc.
- Krueger, Anne O, 1997. "Trade Policy and Economic Development: How We Learn," American Economic Review, American Economic Association, vol. 87(1), pages 1-22, March.
- Suma Athreye & Sandeep Kapur, 2001. "Private Foreign Investment in India: Pain or Panacea?," The World Economy, Wiley Blackwell, vol. 24(3), pages 399-424, 03.
- Emmanuel K. K. Lartey, 2007. "Capital inflows and the real exchange rate: An empirical study of sub-Saharan Africa," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 16(3), pages 337-357.
- Lavan Mahadeva & Javier Gómez Pineda, .
"The international cycle and Colombian monetary policy,"
Borradores de Economia
557, Banco de la Republica de Colombia.
- Lavan Mahadeva & Javier Gómez Pineda, 2009. "The international cycle and Colombian monetary policy," BORRADORES DE ECONOMIA 005406, BANCO DE LA REPÚBLICA.
- Juthathip Jongwanich, 2008. "Real exchange rate overvaluation and currency crisis: evidence from Thailand," Applied Economics, Taylor and Francis Journals, vol. 40(3), pages 373-382.
- Ben Naceur, Sami & Bakardzhieva, Damyana & Kamar, Bassem, 2012. "Disaggregated Capital Flows and Developing Countries’ Competitiveness," World Development, Elsevier, vol. 40(2), pages 223-237.
- Ibarra, Carlos A., 2011. "Capital Flows and Real Exchange Rate Appreciation in Mexico," World Development, Elsevier, vol. 39(12), pages 2080-2090.
- John Beirne, 2009. "Vulnerability of inflation in the new EU Member States to country-specific and global factors," Economics Bulletin, AccessEcon, vol. 29(2), pages 1420-1431.
- Christian Saborowski, 2009. "Capital Inflows and the Real Exchange Rate: Can Financial Development Cure the Dutch Disease?," IMF Working Papers 09/20, International Monetary Fund.
- Jean-Louis COMBES & Patrick PLANE & Tidiane KINDA, 2010.
"Capital Flows and their Impact on the Real Effective Exchange Rate,"
- Jean-Louis Combes & Patrick Plane & Tidiane Kinda, 2011. "Capital Flows and their Impact on the Real Effective Exchange Rate," Working Papers halshs-00552213, HAL.
- Heng, Dyna, 2011. "Capital flows and real exchange rate: does financial development matter?," MPRA Paper 48553, University Library of Munich, Germany, revised May 2012.
- Andrew Powell & Pilar Tavella, 2012. "Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be?," Research Department Publications 4782, Inter-American Development Bank, Research Department.
- Foster, Vivien & Yepes, Tito, 2006. "Is cost recovery a feasible objective for water and electricity ? The Latin American experience," Policy Research Working Paper Series 3943, The World Bank.
- Jorge Carrera & Romain Restout, 2008.
"Long Run Determinants of Real Exchange Rates in Latin America,"
- Jorge Carrera & Romain Restout, 2008. "Long Run Determinants of Real Exchange Rates in Latin America," Working Papers 0811, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Paulo Gala, 2005. "Exchange Rate Policies In Latin America And Asia, A Comparative Study," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 077, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Hubert Gabrisch & Karsten Staehr, 2012.
"The Euro Plus Pact: Competitiveness and external capital flows in the EU countries,"
Bank of Estonia Working Papers
wp2012-5, Bank of Estonia, revised 10 Dec 2012.
- Hubert Gabrisch & Karsten Staehr, 2012. "The Euro Plus Pact: Competitiveness and External Capital Flows in the EU Countries," Working Papers 324, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
- Joshua Aizenman & Daniel Riera-Crichton, 2006. "Real Exchange Rate and International Reserves in the Era of Growing Financial and Trade Integration," NBER Working Papers 12363, National Bureau of Economic Research, Inc.
- Heng, Dyna, 2011. "Does financial development reduce the motivation to hoard foreign reserves?," MPRA Paper 48555, University Library of Munich, Germany, revised 2012.
- Ross H McLeod, 2003. "Equilibrium is good: Comments on Athukorala and Rajapatirana," Departmental Working Papers 2003-12, The Australian National University, Arndt-Corden Department of Economics.
- Nanno Mulder & Anne-Laure Baldi, 2004. "The Impact of Exchange Rate Regimes on Real Exchange Rates: ABC and Mexico in the 1990s," Econometric Society 2004 Latin American Meetings 45, Econometric Society.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.