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Capital Flows to Emerging Markets: An alternative Theoretical Framework

  • Bruno Bonizzi

    ()

    (Department of Economics, SOAS, University of London, UK)

This paper represents a theoretical contribution to the analysis of international capital flows. It outlines an alternative theoretical framework based on Post-Keynesian monetary theory, and in particular on Hyman Minsky’s Wall Street paradigm and concept of Money-manager capitalism and Jan Toporowski’s theory of capital market inflation. The key aspects of such an approach are, firstly, that in a monetary analysis capital flows need to be understood as “flows of fundsâ€, as opposed to the traditional understanding of capital flows based on “real†decision, such as saving and investment. A consequence of this is the need of focusing on gross rather than net capital flows. Secondly, when considering emerging markets, the asymmetric nature of the international monetary system must be stressed. Thirdly, it is important to understand the specific forms that capital flows take: in today’s world, pension funds and other institutional investors — alongside banks — are key players in the financial markets, and their role in shaping capital flows to emerging markets must be explicitly recognised. This paper synthesises these elements by understanding capital flows as the result of institutional investors portfolio choice. Along the lines of Minsky and Toporowski, portfolio choice by institutional investors need to be assessed in relation to their balance sheet structure, beside risk/return trade-offs and general state of risk aversion

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Paper provided by Department of Economics, SOAS, University of London, UK in its series Working Papers with number 186.

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Length: 24 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:soa:wpaper:186
Contact details of provider: Postal: Thornhaugh Street, London WC1H OXG
Web page: http://www.soas.ac.uk/economics/

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  8. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 63-111, April.
  9. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  10. Dimitri Papadimitriou & L. Randall Wray, 1998. "The Economic Contributions of Hyman Minsky: varieties of capitalism and institutional reform," Review of Political Economy, Taylor & Francis Journals, vol. 10(2), pages 199-225.
  11. Jan Toporowski, 2000. "Monetary Policy in an Era of Capital Market Inflation," Macroeconomics 0004026, EconWPA.
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  17. Devereux, Michael B. & Sutherland, Alan, 2010. "Valuation effects and the dynamics of net external assets," Journal of International Economics, Elsevier, vol. 80(1), pages 129-143, January.
  18. Jan Toporowski, 2012. "Neologism as Theoretical Innovation in Economics: The case of 'Financialisation'," Working Papers 171, Department of Economics, SOAS, University of London, UK.
  19. Lavoie, M, 1995. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Working Papers 9513e, University of Ottawa, Department of Economics.
  20. Evans, Martin D.D. & Hnatkovska, Viktoria, 2012. "A method for solving general equilibrium models with incomplete markets and many financial assets," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1909-1930.
  21. Giuseppe Fontana, 2002. "Some notes on the monetary debate within the Post Keynesian school," Chapters, in: Post Keynesian Econometrics, Microeconomics and the Theory of the Firm, chapter 9 Edward Elgar.
  22. Jan Toporowski, 2010. "A Theory of Capital Rationing," Working Papers 166, Department of Economics, SOAS, University of London, UK.
  23. Giancarlo Bertocco, 2005. "The Role of credit in a Keynesian monetary economy," Review of Political Economy, Taylor & Francis Journals, vol. 17(4), pages 489-511.
  24. Giuseppe Fontana, 2000. "Post Keynesians and Circuitists on Money and Uncertainty: An Attempt at Generality," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 23(1), pages 27-48, October.
  25. Riccardo Bellofiore & Joseph Halevi & Marco Passarella, 2010. "Minsky in the ‘New’ Capitalism: The New Clothes of the Financial Instability Hypothesis," Chapters, in: The Elgar Companion to Hyman Minsky, chapter 4 Edward Elgar.
  26. Dani Rodrik & Arvind Subramanian, 2009. "Why Did Financial Globalization Disappoint?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 112-138, April.
  27. Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.
  28. Philip Arestis, 2002. "Financial crisis in Southeast Asia: dispelling illusion the Minskyan way," Cambridge Journal of Economics, Oxford University Press, vol. 26(2), pages 237-260, March.
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