There are two basic approaches to identifying the determinants of capital flows, viz. the traditional and the portfolio (or modern) approach. Although most econometric models have by now forsaken the traditional capital flow equations in favour of modelling financial linkages via arbitrage type interest rate parity relations, the importance of fundamentals in explaining particular capital flow developments cannot be denied (International Monetary Fund, 1992). This paper identifies the determinants of capital flows using the conventional approach, and is based on a cross-sectional study of eight countries, viz. Australia, India, Indonesia, Argentina, Brazil, Chile, Columbia and Mexico. Non-linear Seemingly Unrelated Regression estimation has been used to allow for cross-country effects in the error structure.
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Paper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number
0601.
Length: 15 pages Date of creation: 22 Mar 2006 Date of revision: Handle: RePEc:vic:vicewp:0601
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Find related papers by JEL classification: C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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