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Globalization and the Increasing Correlation between Capital Inflows and Outflows

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  • J. Scott Davis
  • Eric van Wincoop

Abstract

We document that the correlation between capital inflows and outflows has increased substantially over time in a sample of 128 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 14 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows and outflows is consistent with the data.

Suggested Citation

  • J. Scott Davis & Eric van Wincoop, 2017. "Globalization and the Increasing Correlation between Capital Inflows and Outflows," NBER Working Papers 23671, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23671
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    Citations

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    Cited by:

    1. Belke, Ansgar & Domnick, Clemens, 2018. "Trade and capital flows: Substitutes or complements? An empirical investigation," GLO Discussion Paper Series 269, Global Labor Organization (GLO).
    2. repec:eee:jimfin:v:87:y:2018:i:c:p:1-21 is not listed on IDEAS
    3. Philippe Bacchetta & Eric van Wincoop, 2018. "Puzzling Exchange Rate Dynamics and Delayed Portfolio Adjustment," 2018 Meeting Papers 675, Society for Economic Dynamics.
    4. Erdal Özmen & Fatma Taşdemir, 2019. "Globalisation And Governance: Thresholds For The Impacts Of The Main Determinants Of Capital Inflows?," ERC Working Papers 1902, ERC - Economic Research Center, Middle East Technical University, revised Mar 2019.
    5. Stefan Avdjiev & Bryan Hardy & Sebnem Kalemli-Ozcan & Luis Servén, 2017. "Gross Capital Flows by Banks, Corporates and Sovereigns," NBER Working Papers 23116, National Bureau of Economic Research, Inc.
    6. Hyunju Lee, 2018. "Gross Capital Flows and International Diversification," 2018 Meeting Papers 51, Society for Economic Dynamics.
    7. Erdal Özmen & Fatma Taşdemir, 2018. "Gross Capital Inflows And Outflows: Twins Or Distant Cousins?," ERC Working Papers 1807, ERC - Economic Research Center, Middle East Technical University, revised Apr 2018.
    8. Davis, J. Scott & Valente, Giorgio & Van Wincoop, Eric, 2019. "Global Drivers of Gross and Net Capital Flows," Globalization Institute Working Papers 357, Federal Reserve Bank of Dallas.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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