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Gross Capital Flows and their long-term Determinants for Developing Economies: A Panel Co-integration Approach

Listed author(s):
  • Fernando Arias

    (Banco de la República de Colombia)

  • David Delgado

    (Banco de la República de Colombia)

  • Daniel Parra

    (Universidad Militar Nueva Granada)

  • Hernán Rincón-Castro

    ()

    (Banco de la República de Colombia)

The purpose of this paper is to estimate a model for gross capital flows for a sample of developing economies and assess their long-term determinants by using a panel co-integration approach. Results indicate that there is a co-integration relationship between key push and pull factors and gross capital inflows. Particularly, FDI inflows have a positive, long-term association with GDP growth, and a negative one with public debt and the interest rate differential (the latter being a puzzling finding), while portfolio inflows are connected negatively to foreign asset prices and positively to international financial market volatility. Unexpectedly, interest rate differentials do not exhibit a long-term relationship with the latter, which challenges the standard portfolio assumption -that uncovered interest parity is satisfied, at least, in the long term-. As for disaggregate outflows, no long-term association between them and their drivers could be obtained. Classification JEL:F21, F32, F36, C5

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 932.

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Length: 30
Date of creation: Mar 2016
Handle: RePEc:bdr:borrec:932
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