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Growth from International Capital Flows; The Role of Volatility Regimes

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  • Antu Panini Murshid
  • Ashoka Mody

Abstract

Recent commentary has downplayed the growth dividend from international financial integration, highlighting the possibly negative correlation between capital inflows and long-run growth. This paper presents new evidence consistent with standard economic theory and a more benign interpretation of cross-border private capital flows. The key observation is that a country’s growth volatility changes over time. With volatility below a threshold, an inflow of foreign capital has promoted growth. However, during periods of volatile growth, more flows have been associated with slower growth. Volatility levels and changes reflect an interaction of domestic production and institutional structures with global factors.

Suggested Citation

  • Antu Panini Murshid & Ashoka Mody, 2011. "Growth from International Capital Flows; The Role of Volatility Regimes," IMF Working Papers 11/90, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/90
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=24811
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    References listed on IDEAS

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    1. Pierre-Olivier Gourinchas & Olivier Jeanne, 2013. "Capital Flows to Developing Countries: The Allocation Puzzle," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1484-1515.
    2. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
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    Cited by:

    1. Erauskin, Iñaki, 2013. "The impact of financial openness on the size of utility-enhancing government," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-56.
    2. Kyriakos C. Neanidis, 2015. "Volatile Capital Flows and Economic Growth: The Role of Macro-prudential Regulation," Centre for Growth and Business Cycle Research Discussion Paper Series 215, Economics, The Univeristy of Manchester.
    3. Natalya Ketenci, 2015. "Economic growth and capital flow in European countries in pre and post-crisis periods," Cuadernos de Economía - Spanish Journal of Economics and Finance, ELSEVIER, vol. 38(108), pages 163-180, Septiembr.
    4. Ketenci, Natalya, 2017. "The Impact of the Global Financial Crisis on the Economic Development in the Eurasian Region," MPRA Paper 83780, University Library of Munich, Germany, revised 2017.
    5. Gauvin, L. & McLoughlin, C. & Reinhardt, D., 2013. "Policy Uncertainty Spillovers to Emerging Markets - Evidence from Capital Flows," Working papers 435, Banque de France.

    More about this item

    Keywords

    Capital flows; growth; growth volatility; heteroscedasticity; volatility regimes; current account; capital inflows; current account balance; private capital flows; Economic Growth of Open Economies;

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