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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:bdr:borrec:932
    DOI: 10.32468/be.932
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    More about this item

    Keywords

    gross capital flows; long-term determinants; developing economies; panel co-integration approach;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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