Gross Capital Inflows And Outflows: Twins Or Distant Cousins?

We investigate the long-run relations and equilibrium correction mechanisms between gross capital inflows, outflows and global financial conditions for advanced and emerging market economies. According to our results, the findings of the recent empirical literature, suggesting that twin behaviour of capital inflows and outflows resulting from domestic and foreign investors to behave as distant cousins tend to be the case for the long-run. The short-run relations, however, often appear to be consistent with the conventional theory suggesting that the behaviours of residents and non-residents do not systematically diverge from each other. Consistent with the flight to safety concerns, capital outflows from EME and capital inflows to AE tend to increase in the long-run in response to worsening global financial conditions. We find that, these results essentially hold also for the main components of capital flows.