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Large Capital Inflows, Sectoral Allocation, and Economic Performance


  • Gianluca Benigno

    () (London School of Economics (LSE)
    Centre for Macroeconomics (CFM))

  • Nathan Converse

    () (International Finance Division, Federal Reserve Board)

  • Luca Fornaro

    () (Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate School of Economics (Barcelona GSE))


This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode.

Suggested Citation

  • Gianluca Benigno & Nathan Converse & Luca Fornaro, 2015. "Large Capital Inflows, Sectoral Allocation, and Economic Performance," Discussion Papers 1511, Centre for Macroeconomics (CFM).
  • Handle: RePEc:cfm:wpaper:1511

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    Cited by:

    1. Deniz O Igan & Ali M. Kutan & Ali Mirzae, 2016. "Real Effects of Capital Inflows in Emerging Markets," IMF Working Papers 16/235, International Monetary Fund.
    2. repec:oup:revfin:v:21:y:2017:i:4:p:1513-1555. is not listed on IDEAS
    3. Belke, Ansgar & Setzer, Ralph & Haskamp, Ulrich, 2016. "Bank efficiency and regional growth in Europe: new evidence from micro-data," Working Paper Series 1983, European Central Bank.
    4. Christian Friedrich & Pierre Guérin, 2016. "The Dynamics of Capital Flow Episodes," Staff Working Papers 16-9, Bank of Canada.
    5. Tomas Williams, 2017. "Capital Inflows, Sovereign Debt and Bank Lending: Micro-Evidence from an Emerging Market," Working Papers 2017-12, The George Washington University, Institute for International Economic Policy.
    6. Habib, Maurizio Michael & Mileva, Elitza & Stracca, Livio, 2017. "The real exchange rate and economic growth: Revisiting the case using external instruments," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 386-398.
    7. Cette, Gilbert & Fernald, John & Mojon, Benoît, 2016. "The pre-Great Recession slowdown in productivity," European Economic Review, Elsevier, vol. 88(C), pages 3-20.
    8. repec:eee:jimfin:v:74:y:2017:i:c:p:88-114 is not listed on IDEAS
    9. Lane, Philip R., 2015. "Macro-Financial Stability under EMU," CEPR Discussion Papers 10776, C.E.P.R. Discussion Papers.
    10. Rogelio Mercado Jr., 2016. "Not All Surges of Gross Capital Inflows Are Alike," Trinity Economics Papers tep2016, Trinity College Dublin, Department of Economics.
    11. Stijn Claessens, 2017. "Global Banking: Recent Developments and Insights from Research," Review of Finance, European Finance Association, vol. 21(4), pages 1513-1555.
    12. Rogelio Mercado Jr., 2016. "Are Capital Inflows Expansionary or Contractionary in the Philippines?," Trinity Economics Papers tep2116, Trinity College Dublin, Department of Economics.
    13. repec:erc:cypepr:v:11:y:2017:i:2:p:19-62 is not listed on IDEAS
    14. Samarina, Anna & Bezemer, Dirk, 2016. "Do capital flows change domestic credit allocation?," Journal of International Money and Finance, Elsevier, vol. 62(C), pages 98-121.
    15. Philip R. Lane, 2015. "Macro-Financial Stability under EMU," Trinity Economics Papers tep0615, Trinity College Dublin, Department of Economics.
    16. Puspa D. Amri & Greg M. Richey & Thomas D. Willett, 2016. "Capital Surges and Credit Booms: How Tight is the Relationship?," Open Economies Review, Springer, vol. 27(4), pages 637-670, September.
    17. Juan Guerra-Salas, 2016. "Fiscal Policy, Sectoral Allocation, and the Skill Premium: Explaining the Decline in Latin America’s Income Inequality," Working Papers Central Bank of Chile 779, Central Bank of Chile.
    18. Miguel Angel Saldarriaga, 2017. "Credit Booms in Commodity Exporters," Working Papers 2017-98, Peruvian Economic Association.

    More about this item


    Capital Flows; Surges; Sectoral Allocation; Sudden Stops;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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