Advanced Search
MyIDEAS: Login

Boom, bust, recovery - what next in private capital flows to emerging markets?

Contents:

Author Info

  • Nunnenkamp, Peter

Abstract

International capital markets are far from functioning perfectly. During the last decade, they overshot both ways: The earlier boom of private capital flows to emerging market economies (EMEs) turned out to be the prelude to the drama of seriously impaired access to foreign capital in the late 1990s. Current concerns are that the next boomand- bust cycle is in the making, after EMEs have been surprisingly quick in returning to international capital markets. Capital market failures notwithstanding, it is hypocritical to blame foreign investors for having caused financial crises. Recent crisis episodes do not support the view that pure contagion has affected EMEs with prudent macroeconomic policies and sound financial sectors. Economic fundamentals do matter still. However, increased international capital mobility implies that foreign (and domestic!) investors react more quickly and drastically to any news, be it bad or good news. Domestic policy failures underlying recent financial crises differed considerably. Brazil experienced a conventional currency crisis, caused by inconsistent macroeconomic policies. Korea was characterized by structural weaknesses such as a highly leveraged corporate sector and fragile financial institutions, and by a policy-induced composition of external financing that rendered the country extremely vulnerable to changing expectations of foreign investors. A differentiated analysis of international capital markets is required in order to assess the role of private foreign capital in financing EMEs on a sustainable basis. The reaction to financial crises differed between major types of foreign investors. Notably foreign direct investment has proven to be fairly stable. Hence, the structure of capital inflows matters for the sustainability of external financing. It depends on exogenous factors beyond the control of EMEs and economic policies pursued in EMEs whether external financing will be provided on a more sustainable basis in the future. As concerns the former, sustainable financing would be encouraged if longer-term engagements by pension funds were supported by deregulation in developed countries, and if reforms in the international financial architecture resulted in prudent bank lending. As concerns the latter, external financing requirements must be kept within reasonable limits, and capital inflows should be restructured towards relatively stable items. The timing and sequencing of capital account liberalization is crucially important to reduce the risk of a sudden reversal in capital flows. The good news for EMEs from recent capital market developments is threefold: First, EMEs are not denied access to foreign capital for long even after major economic crises. Second, in contrast to widespread belief, international capital flows are not a zero-sum game, from which only a few large and advanced EMEs can derive benefits. Third, while openness to global capital markets implies hard policy choices, it largely depends on EMEs themselves to which extent they will benefit from 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://econstor.eu/bitstream/10419/2434/1/315313420.PDF
Download Restriction: no

Bibliographic Info

Paper provided by Kiel Institute for the World Economy (IfW) in its series Kiel Discussion Papers with number 362.

as in new window
Length:
Date of creation: 2000
Date of revision:
Handle: RePEc:zbw:ifwkdp:362

Contact details of provider:
Postal: Kiellinie 66, D-24105 Kiel
Phone: +49 431 8814-1
Fax: +49 431 8814528
Email:
Web page: http://www.ifw-kiel.de/
More information through EDIRC

Related research

Keywords:

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. Jeffrey Sachs & Andrew M. Warner, 1995. "Economic Convergence and Economic Policies," CASE Network Studies and Analyses 0035, CASE-Center for Social and Economic Research.
  2. Helmut Reisen & Julia von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," OECD Development Centre Working Papers 148, OECD Publishing.
  3. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "Getting it Right: What to Reform in International Financial Markets," Research Department Publications 4223, Inter-American Development Bank, Research Department.
  4. Langhammer, Rolf J. & Schweickert, Rainer, 1995. "The Mexican reform process : improving long-run perspectives and mastering short-run turbulences," Kiel Discussion Papers 255, Kiel Institute for the World Economy (IfW).
  5. Helmut Reisen, 1999. "After the Great Asian Slump: Towards a Coherent Approach to Global Capital Flows," OECD Development Centre Policy Briefs 16, OECD Publishing.
  6. Diehl, Markus & Schweickert, Rainer, 1998. "Currency crises: is Asia different?," Kiel Discussion Papers 309, Kiel Institute for the World Economy (IfW).
  7. Erich Gundlach, 1997. "Openness and economic growth in developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(3), pages 479-496, September.
  8. Gundlach, Erich & Nunnenkamp, Peter, 1997. "Labor markets in the global economy: how to prevent rising wage gaps and unemployment," Kiel Discussion Papers 305, Kiel Institute for the World Economy (IfW).
  9. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  10. Buch, Claudia M. & Heinrich, Ralph P. & Pierdzioch, Christian, 1998. "Taxing short-term capital flows - An option for transition economies?," Kiel Discussion Papers 321, Kiel Institute for the World Economy (IfW).
Full references (including those not matched with items on IDEAS)

Citations

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:zbw:ifwkdp:362. 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: (ZBW - German National Library of Economics).

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.