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Are Capital Flows Fickle? Increasingly? And Does the Answer Still Depend on Type?

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  • Barry Eichengreen

    (Department of Economics University of California Berkeley, CA 94720, USA Author email: eichengr@berkeley.edu)

  • Poonam Gupta

    (World Bank Washington, DC Author email: pgupta5@worldbank.org)

  • Oliver Masetti

    (World Bank Washington, DC Author email: omasetti@worldbank.org)

Abstract

According to conventional wisdom, capital flows are fickle. Focusing on emerging markets, we ask whether this conventional wisdom still holds in our contemporary world. Our results show that, despite recent structural and regulatory changes, much of it survives. Foreign direct investment (FDI) inflows are more stable than non-FDI inflows. Within non-FDI inflows, portfolio debt and bank-intermediated flows remain the most volatile. Whereas FDI inflows are driven mainly by pull factors, portfolio debt and equity are driven mainly by push factors; bank-intermediated flows are driven a combination of push and pull factors. Capital outflows from emerging markets behave differently, however. FDI outflows from emerging markets have grown and become significantly more volatile. There is similarly an increase in the volatility of bank-intermediated capital outflows from emerging markets. Our findings underscore that outflows from emerging markets, both FDI and bank-related flows, have come to play a growing role and warrant greater attention from analysts and policymakers.

Suggested Citation

  • Barry Eichengreen & Poonam Gupta & Oliver Masetti, 2018. "Are Capital Flows Fickle? Increasingly? And Does the Answer Still Depend on Type?," Asian Economic Papers, MIT Press, vol. 17(1), pages 22-41, Winter/Sp.
  • Handle: RePEc:tpr:asiaec:v:17:y:2018:i:1:p:22-41
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    1. Sudden Stops: A Primer on Balance-of-Payments Crises
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-06-25 11:59:25

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    1. repec:wsi:jicepx:v:08:y:2017:i:03:n:s179399331750017x is not listed on IDEAS
    2. Fatma Taşdemir & Erdal Özmen, 2018. "Exchange Rate Regimes As Thresholds: The Main Determinants Of Capital Inflows In Emerging Market Economies," ERC Working Papers 1810, ERC - Economic Research Center, Middle East Technical University, revised Oct 2018.
    3. Rogelio Mercado Jr., 2018. "Bilateral Capital Flows: Gravity, Push, and Pull," Trinity Economics Papers tep0818, Trinity College Dublin, Department of Economics.
    4. 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.
    5. Coletta Frenzel Baudisch, 2018. "Sectoral FDI and the Real Exchange Rate: The Role of Financial Development," MAGKS Papers on Economics 201828, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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