Reversibility of Different Types of Capital Flows to Emerging Markets
AbstractMost of the emerging market currency crises are accompanied by sharp reversals or “sudden stops” of capital inflows. We investigated whether some types of capital flows are more likely to reverse than others during these crises. Foreign direct investment is usually considered stable while portfolio investment is frequently depicted as the least reliable type of flow. Recent statistical testing has yielded conflicting results on this issue. We argue that a major problem with recent studies is that the degree of variability of capital flows during normal or inflow periods may give little clue to their behavior during crises and it is the latter that is most important for policy. Using data for 35 emerging economies for 1990 through 2003, we confirm that direct investment is the most stable category, but find that private loans on average are as reversible as portfolio flows.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 384.
Date of creation: Jan 2006
Date of revision:
Capital flows; currency crises; volatility of capital flows; reversibility of capital flows; Emerging Markets; private loans; portfolio flows; foreign direct investment;
Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-04 (All new papers)
- NEP-CBA-2006-12-04 (Central Banking)
- NEP-IFN-2006-12-04 (International Finance)
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