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Push factors and capital flows to emerging markets: why knowing your lender matters more than fundamentals

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  • Cerutti, Eugenio
  • Claessens, Stijn
  • Puy, Damien

Abstract

Countries' gross capital inflows are not equally affected by changes in global conditions. Analyzing 21 advanced countries (ACs) and 33 emerging markets (EMs) between 2001 and 2015, we confirm that co-movements in capital inflows are concentrated in bank, portfolio bond, and portfolio equity flows to EMs. However, changes in global factors do not affect all EMs equally, even for the same type of flow. Investigating the characteristics of these sensitivities, we find that EMs relying more on global mutual funds are more sensitive in their gross equity and bond inflows. Recipient market liquidity and inclusion in global market indices also increase sensitivities, but we find little robust evidence that institutional and macroeconomic fundamentals dampen sensitivities.

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  • Cerutti, Eugenio & Claessens, Stijn & Puy, Damien, 2019. "Push factors and capital flows to emerging markets: why knowing your lender matters more than fundamentals," Journal of International Economics, Elsevier, vol. 119(C), pages 133-149.
  • Handle: RePEc:eee:inecon:v:119:y:2019:i:c:p:133-149
    DOI: 10.1016/j.jinteco.2019.04.006
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    More about this item

    Keywords

    Push factors; Capital flows; Emerging markets; Mutual funds; Global banks; Global financial cycle;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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