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Capital market inflation in emerging markets: The case of Brazil and South Korea

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  • Bonizzi, Bruno

Abstract

This paper aims to investigate the dynamics of capital markets in emerging markets in a period of financial integration. It takes the case of Brazil and South Korea, two key emerging markets in the global economy, to assess the relationship between capital flows and equity prices. This is analysed through Jan Toporowski’s theory of “capital market inflation”, which explains the movements of equity prices in relation to the inflows of funds into the capital market. The main argument put forward is that the foreign capital inflows into the emerging equity markets have substantially concurred to create the excess liquidity that gives rise to a process of capital market inflation. This contributes both to extend Toporowski’s theory to the context of emerging financially open countries, and to give a new perspective to the debates over financial globalisation by proposing the theory of capital market inflation as a framework to understand the mechanics of capital flows to emerging markets. The empirical evidence available from Brazil and South Korea suggests that this is a consistent and instructive framework of analysis.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51255.

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Date of creation: Sep 2013
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Handle: RePEc:pra:mprapa:51255

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Keywords: Finance; Capital Market; Asset Price; Capital Gain; Globalisation;

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  1. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  2. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization," IMF Working Papers 06/189, International Monetary Fund.
  3. Prasad, Eswar & Rajan, Raghuram G. & Subramanian, Arvind, 2007. "Foreign Capital and Economic Growth," IZA Discussion Papers 3186, Institute for the Study of Labor (IZA).
  4. repec:fth:wobaco:1083 is not listed on IDEAS
  5. Pierre-Olivier & Olivier Jeanne, 2009. "Capital Flows to Developing Countries: The Allocation Puzzle," Working Paper Series WP09-12, Peterson Institute for International Economics.
  6. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
  7. Kose, Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2006. "Financial Globalization: A Reappraisal," CEPR Discussion Papers 5842, C.E.P.R. Discussion Papers.
  8. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  9. Byung Chan Ahn, 2008. "Capital flows and effects on financial markets in Korea: developments and policy responses," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 305-320 Bank for International Settlements.
  10. Jonathan David Ostry & Atish R. Ghosh & Karl Friedrich Habermeier & Marcos Chamon & Mahvash Saeed Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows," IMF Staff Position Notes 2010/04, International Monetary Fund.
  11. Yeyati, Eduardo Levy & Williams, Tomas, 2011. "Financial globalization in emerging economies : much ado about nothing ?," Policy Research Working Paper Series 5624, The World Bank.
  12. Frederic Mishkin, 2005. "Is Financial Globalization Beneficial?," NBER Working Papers 11891, National Bureau of Economic Research, Inc.
  13. Prasad, Eswar, 2011. "Role Reversal in Global Finance," IZA Discussion Papers 6032, Institute for the Study of Labor (IZA).
  14. Jan Toporowski, 2010. "A Theory of Capital Rationing," Working Papers 166, Department of Economics, SOAS, University of London, UK.
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