IDEAS home Printed from https://ideas.repec.org/a/jda/journl/vol.49year2015issue6pp219-234.html
   My bibliography  Save this article

Pattern of capital inflows in BRICS: Aspects to ponder for policy implementation

Author

Listed:
  • Dolly Sunny
  • Anupama Unnikrishnan

    (University of Mumbai, India)

Abstract

Surge in capital inflows can stimulate economic growth in developing countries and also lead to macroeconomic fluctuations of varied nature. This makes the analysis of determinants of capital inflows in developing countries interesting. The behavior of capital inflows in the long and short run has been under study. Such analysis could help to avoid undesirable consequences of surge in capital inflows. Traditional literatures on determinants of capital inflows are bifurcated into push and pull factors. The present research focuses on pull factors determining the inflows of capital. This research tries to identify main determinants of capital inflows in BRICS using Vector Autoregression (VAR) technique. Johansen cointegration and Augmented Dickey fuller test are used for data analysis. The Vector Error Correction model (VECM) which is a restricted VAR is used for the analysis since Johansen cointegration test suggested cointegration among the variables in the long run for BRICS. The lag length of the model is determined by performing Schwarz Information Criterion. Impulse response function is used to gauge the effects of shocks on capital inflows with World Bank’s annual data (1992-2012). The variables used in the study include capital inflows (sum of FDI and portfolio equity), inflation, exchange rate, Gross Capital Formation and Gross Domestic Product. All the variables are constant at 2005 U.S. dollars. All the diagnostic testing done for BRICS countries made it relevant to estimate the equations using OLS estimate. In Brazil, capital inflows are influenced by lagged and current values of GDP, GCF and Exchange rate. The Vector Error Correction Model (VECM) estimates of Russian economy indicates cointegration of capital inflows with GDP and Inflation in the long run. Capital inflows in Indian economy is determined by inflation and exchange rate. In China higher GCF plays an important role in attracting capital inflows. In South Africa only inflation is causative factor which determines capital inflows. The Gross Domestic Product is observed to be the vital factor determining the capital inflows to BRICS. The study forecasts improvement of investment climate for attracting capital inflows into BRICS. Economic stability of BRICS is found to be one of the major factors influencing capital inflows in BRICS. The study forecast that in economies of Russia, India and South Africa emergency measures should be taken to curb inflation. Inflation, GDP, GCF and exchange rate are critical factors in attracting capital inflows, which helps in formulating appropriate policies for improving the performance of domestic economy.

Suggested Citation

  • Dolly Sunny & Anupama Unnikrishnan, 2015. "Pattern of capital inflows in BRICS: Aspects to ponder for policy implementation," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(6), pages 219-234, Special I.
    • Handle: RePEc:jda:journl:vol.49:year:2015:issue6:pp:219-234
    as

    Download full text from publisher

    File URL: http://muse.jhu.edu/journals/journal_of_developing_areas/v049/49.6.sunny.html
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Vincent R. Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 5(1), pages 9-62.
    2. Yung-Hsiang Ying & Yoonbai Kim, 2001. "An Empirical Analysis on Capital Flows: The Case of Korea and Mexico," Southern Economic Journal, John Wiley & Sons, vol. 67(4), pages 954-968, April.
    3. Ilan Goldfajn & André Minella, 2007. "Capital Flows and Controls in Brazil: What Have We Learned?," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 349-420, National Bureau of Economic Research, Inc.
    4. Byrne, Joseph P. & Fiess, Norbert, 2011. "International Capital Flows to Emerging and Developing Countries: National and Global Determinants," SIRE Discussion Papers 2011-03, Scottish Institute for Research in Economics (SIRE).
    5. Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 291-333, National Bureau of Economic Research, Inc.
    6. Campbell, John Y. (ed.), 2008. "Asset Prices and Monetary Policy," National Bureau of Economic Research Books, University of Chicago Press, number 9780226092119.
    7. Brana, Sophie & Lahet, Delphine, 2010. "Determinants of capital inflows into Asia: The relevance of contagion effects as push factors," Emerging Markets Review, Elsevier, vol. 11(3), pages 273-284, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Byrne, Joseph P. & Fiess, Norbert, 2011. "International Capital Flows to Emerging and Developing Countries: National and Global Determinants," SIRE Discussion Papers 2011-03, Scottish Institute for Research in Economics (SIRE).
    2. International Monetary Fund, 2010. "FDI Flows to Low-Income Countries: Global Drivers and Growth Implications," IMF Working Papers 2010/132, International Monetary Fund.
    3. Ansgar Belke & Daniel Gros, 2014. "A simple model of an oil based global savings glut—the “China factor”and the OPEC cartel," International Economics and Economic Policy, Springer, vol. 11(3), pages 413-430, September.
    4. Hardik A. Marfatia, 2016. "The Role of Push and Pull Factors in Driving Global Capital Flows," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 62(2), pages 117-146.
    5. Joseph P Byrne & Ryuta Sakemoto & Bing Xu, 2020. "Commodity price co-movement: heterogeneity and the time-varying impact of fundamentals [Oil price shocks and the stock market: evidence from Japan]," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 47(2), pages 499-528.
    6. Marco Lombardi & Chiara Osbat & Bernd Schnatz, 2012. "Global commodity cycles and linkages: a FAVAR approach," Empirical Economics, Springer, vol. 43(2), pages 651-670, October.
    7. Selien De Schryder & Gert Peersman, 2016. "The U.S. Dollar Exchange Rate and the Demand for Oil," The Energy Journal, , vol. 37(1), pages 90-114, January.
    8. Fernando Arias & David Delgado & Daniel Parra & Hernán Rincón-Castro, 2016. "Gross Capital Flows and their long-term Determinants for Developing Economies: A Panel Co-integration Approach," Borradores de Economia 932, Banco de la Republica de Colombia.
    9. Mr. Shaun K. Roache & Mrs. Marina V Rousset, 2013. "Unconventional Monetary Policy and Asset Price Risk," IMF Working Papers 2013/190, International Monetary Fund.
    10. Tomislav Globan, 2015. "Financial integration, push factors and volatility of capital flows: evidence from EU new member states," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 643-672, August.
    11. Ahmed, Shaghil & Zlate, Andrei, 2014. "Capital flows to emerging market economies: A brave new world?," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 221-248.
    12. Tarek Chebbi, 2021. "The response of precious metal futures markets to unconventional monetary surprises in the presence of uncertainty," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1897-1916, April.
    13. Keller, Michael, 2020. "Wasted windfalls: Inefficiencies in health care spending in oil rich countries," Resources Policy, Elsevier, vol. 66(C).
    14. Shalini, Velappan & Prasanna, Krishna, 2016. "Impact of the financial crisis on Indian commodity markets: Structural breaks and volatility dynamics," Energy Economics, Elsevier, vol. 53(C), pages 40-57.
    15. Baumeister, Christiane & Guérin, Pierre & Kilian, Lutz, 2015. "Do high-frequency financial data help forecast oil prices? The MIDAS touch at work," International Journal of Forecasting, Elsevier, vol. 31(2), pages 238-252.
    16. Rossen, Anja, 2015. "What are metal prices like? Co-movement, price cycles and long-run trends," Resources Policy, Elsevier, vol. 45(C), pages 255-276.
    17. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
    18. Lucotte, Yannick, 2016. "Co-movements between crude oil and food prices: A post-commodity boom perspective," Economics Letters, Elsevier, vol. 147(C), pages 142-147.
    19. Papież, Monika & Śmiech, Sławomir, 2015. "Dynamic steam coal market integration: Evidence from rolling cointegration analysis," Energy Economics, Elsevier, vol. 51(C), pages 510-520.
    20. Bakas, Dimitrios & Triantafyllou, Athanasios, 2018. "The impact of uncertainty shocks on the volatility of commodity prices," Journal of International Money and Finance, Elsevier, vol. 87(C), pages 96-111.

    More about this item

    Keywords

    Capital Inflows; BRICS; Vector Autoregression; Impulse Response Function;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G00 - Financial Economics - - General - - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jda:journl:vol.49:year:2015:issue6:pp:219-234. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Abu N.M. Wahid (email available below). General contact details of provider: https://edirc.repec.org/data/cbtnsus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.