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Real Effects of Capital Inflows in Emerging Markets

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  • Deniz O Igan
  • Ali M. Kutan
  • Ali Mirzae

Abstract

We examine the association between capital inflows and industry growth in a sample of 22 emerging market economies from 1998 to 2010. We expect more external finance dependent industries in countries that host more capital inflows to grow disproportionately faster. This is indeed the case in the pre-crisis period of 1998–2007, and is driven by debt, rather than equity, inflows. We also observe a reduction in output volatility but this association is more pronounced for equity, rather than debt, inflows. These relationships, however, break down during the crisis, hinting at the importance of an undisrupted global financial system for emerging markets to harness the growth benefits of capital inflows. In line with this observation, we also document that the inflows-growth nexus is stronger in countries with well-functioning banks.

Suggested Citation

  • 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.
  • Handle: RePEc:imf:imfwpa:16/235
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    Cited by:

    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. repec:sgh:gosnar:y:2017:i:6:p:5-29 is not listed on IDEAS
    4. repec:eee:quaeco:v:71:y:2019:i:c:p:56-66 is not listed on IDEAS
    5. Rose Cunningham & Eden Hatzvi & Kun Mo, 2018. "The Size and Destination of China's Portfolio Outflows," Discussion Papers 18-11, Bank of Canada.
    6. repec:eee:respol:v:48:y:2019:i:1:p:355-370 is not listed on IDEAS

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