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Capital Flows to Developing Countries: Long- and Short-Term Determinants

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  • Taylor, Mark P
  • Sarno, Lucio

Abstract

This article focuses on the determinants of the large portfolio flows from the United States to Latin American and Asian countries during 1988-92. Cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long-run determinants of portfolio flows. The article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error-correction models. Global and country-specific factors are equally important in determining the long-run movements in equity flows for both Asian and Latin American countries, while global factors are much more important than domestic factors in explaining the dynamics of bond flows. U.S. interest rates are a particularly important determinant of the short-run dynamics of portfolio, especially bond flows to developing countries. Copyright 1997 by Oxford University Press.

Suggested Citation

  • Taylor, Mark P & Sarno, Lucio, 1997. "Capital Flows to Developing Countries: Long- and Short-Term Determinants," World Bank Economic Review, World Bank Group, vol. 11(3), pages 451-470, September.
  • Handle: RePEc:oup:wbecrv:v:11:y:1997:i:3:p:451-70
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