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Globalization and the increasing correlation between capital inflows and outflows

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  • Davis, J. Scott
  • Van Wincoop, Eric

Abstract

The correlation between capital inflows and outflows has increased substantially over time in a sample of 127 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 8 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows and outflows is consistent with the data.

Suggested Citation

  • Davis, J. Scott & Van Wincoop, Eric, 2018. "Globalization and the increasing correlation between capital inflows and outflows," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 83-100.
  • Handle: RePEc:eee:moneco:v:100:y:2018:i:c:p:83-100
    DOI: 10.1016/j.jmoneco.2018.07.009
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    Citations

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    Cited by:

    1. Belke, Ansgar & Domnick, Clemens, 2018. "Trade and capital flows: Substitutes or complements? An empirical investigation," GLO Discussion Paper Series 269, Global Labor Organization (GLO).
    2. Wang, Yabin, 2018. "Fickle capital flows and retrenchment: Evidence from bilateral banking data," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 1-21.
    3. J. Scott Davis & Giorgio Valente & Eric van Wincoop, 2019. "Global Capital Flows Cycle: Impact on Gross and Net Flows," NBER Working Papers 25721, National Bureau of Economic Research, Inc.
    4. Hyunju Lee, 2018. "Gross Capital Flows and International Diversification," 2018 Meeting Papers 51, Society for Economic Dynamics.
    5. Stefan Avdjiev & Bryan Hardy & Ṣebnem Kalemli-Özcan & Luis Servén, 2017. "Gross Capital Flows by Banks, Corporates and Sovereigns," NBER Working Papers 23116, National Bureau of Economic Research, Inc.
    6. J. Scott Davis & Giorgio Valente & Eric Van Wincoop, 2019. "Global Drivers of Gross and Net Capital Flows," Globalization Institute Working Papers 357, Federal Reserve Bank of Dallas, revised 27 Mar 2019.
    7. Philippe Bacchetta & Eric van Wincoop, 2018. "Puzzling Exchange Rate Dynamics and Delayed Portfolio Adjustment," 2018 Meeting Papers 675, Society for Economic Dynamics.
    8. Erdal Özmen & Fatma Taşdemir, 2019. "Globalisation And Governance: Thresholds For The Impacts Of The Main Determinants Of Capital Inflows?," ERC Working Papers 1902, ERC - Economic Research Center, Middle East Technical University, revised Mar 2019.
    9. Erdal Özmen & Fatma Taşdemir, 2018. "Gross Capital Inflows And Outflows: Twins Or Distant Cousins?," ERC Working Papers 1807, ERC - Economic Research Center, Middle East Technical University, revised Apr 2018.

    More about this item

    Keywords

    Capital inflows and outflows; Financial globalization; Trade globalization;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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