Advanced Search
MyIDEAS: Login to save this paper or follow this series

Macroeconomic adjustment to capital inflows : Latin American style versus East Asian style

Contents:

Author Info

  • Corbo, Vittorio
  • Hernandez, Leonardo

Abstract

In recent years, private capital inflows to some developing countries have increased sharply. This increase has provided the financing needed to enhance the use of existing capacity and to raise investment levels. But capital inflows produce their own problems. They can increase inflation and lead to exchange rate appreciation, for example. The authors review the macroeconomic repercussions of an increase in capital inflows. Generally, it will result in appreciation of the real exchange rate, a larger nontradable sector, a smaller tradable sector, and a larger trade deficit. Under a fixed exchange rate regime, it will also result in faster inflation and an accumulation of foreign reserves. Can government intervention minimize the size and effects of real exchange rateappreciation? The authors discuss different mechanisms that can be used to limit the appreciation - and discuss the difference, in this respect, between portfolio investment and external debt. Finally, they review and compare the recent experiences of four Latin American countries (Argentina, Chile, Colombia, and Mexico) and five East Asian countries (Indonesia, Malaysia, the Philippines, the Republic of Korea, and Thailand), and discuss how these countries have dealt with the macroeconomic side effects of capital inflows. The authors found the following: All nine countries have avoided a permanent, significant increase in inflation, it can be argued. In Argentina and Mexico inflation has been decreasing for three or four years, and in the other seven countries it has remained stable. The countries that received the largest average capital inflows (as a proportion of GDP) in 1989-92 are not those that experienced the greatest exchange rate appreciation. In fact, the countries with the greatest capital inflows (Chile, Malaysia, and Thailand) have experienced either depreciation or low appreciation of their currencies. (Appreciation was lower in Thailand than in Korea despite much greater capital inflows in Thailand.) Countries with decreasing government consumption as a percentage of GDP (Chile, Indonesia, and Malaysia) showed less appreciation of the real exchange rate. Countries with increasing government consumption as a percentage of GDP (Argentina, Korea, Mexico, and the Philippines) showed the greatest appreciation of the real exchange rate, despite not receiving the greatest capital inflows.

Download Info

If 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.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1994/11/01/000009265_3970716141915/Rendered/PDF/multi0page.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1377.

as in new window
Length:
Date of creation: 30 Nov 1994
Date of revision:
Handle: RePEc:wbk:wbrwps:1377

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Macroeconomic Management; Economic Stabilization; Economic Theory&Research; Financial Economics; Environmental Economics&Policies;

References

References listed on IDEAS
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.:
as in new window
  1. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  2. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 617-25, June.
  3. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "The capital inflows problem: Concepts and issues," MPRA Paper 13902, University Library of Munich, Germany.
  4. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
  5. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ramkishen Rajan, 2010. "The Currency and Financial Crisis in Southeast Asia: A Case of 'Sudden Death' or Death Foretold'?," Working Papers id:2583, eSocialSciences.
  2. David Martineau & Kiichiro Fukasaku, 1999. "Coopération monétaire en Asie de l'Est : l'apport des tests de causalité et de la cointégration," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 140(4), pages 105-116.
  3. Marcelo Soto & Salvador Valdés, 1996. "¿Es el Control Selectivo de Capitales Efectivo en Chile? Su Efecto sobre el Tipo de Cambio Real," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 77-108.
  4. Renu Kohli, 2001. "Capital Flows and their Macroeconomic Effects in India," IMF Working Papers 01/192, International Monetary Fund.
  5. Clara Garcia, 2004. "Capital Inflows, Policy Responses, and Their Ill Consequences: Thailand, Malaysia, and Indonesia in the Decade Before the Crises," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp81, Political Economy Research Institute, University of Massachusetts at Amherst.
  6. Roberto Chang & Andrés Velasco, 2002. "The 1997-98 Liquidity Crisis: Asia versus Latin America," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 13, pages 413-452 Central Bank of Chile.
  7. Renu Kohli, 2004. "Capital Account Liberalisation: Empirical Evidence and Policy Capital Account Liberalisation: Empirical Evidence and Policy Issues - I," International Finance, EconWPA 0405008, EconWPA.
  8. Reinhart, Carmen & Montiel, Peter, 1999. "Do capital controls influence the volume and composition of capital flows? Evidence from the 1990s," MPRA Paper 13710, University Library of Munich, Germany.
  9. Salvador Valdés-Prieto & Marcelo Soto, 1998. "The Effectiveness of Capital Controls: Theory and Evidence from Chile," Empirica, Springer, Springer, vol. 25(2), pages 133-164, January.
  10. Steven B. Kamin & Paul R. Wood, 1997. "Capital inflows, financial intermediation, and aggregate demand," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 583, Board of Governors of the Federal Reserve System (U.S.).
  11. Reinhart, Carmen & Montiel, Peter, 2001. "The Dynamics of Capital Movements to Emerging Economies During the 1990s," MPRA Paper 7577, University Library of Munich, Germany.
  12. Melike Altinkemer, 2001. "Capital Inflows And Central Bank’s Policy Response," Discussion Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0103, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1377. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.