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Capital Inflows and Capital Outflows: Measurement, Determinants, Consequences

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  • Andrew Powell
  • Dilip Ratha
  • Sanket Mohapatra

Abstract

This paper develops new estimates of capital outflows and is the first, to our knowledge, to analyze the determinants, consequences and inter-relationship between inflows and outflows. Given the dynamics and individual country effects, we use a panel-VAR and find that inflows and outflows are inter-related, that lower inflows/higher outflows lead to lower growth, and among other effects to a higher fiscal deficit, which feeds back to lower inflows/higher outflows. These results provide evidence of vicious and virtuous cycles. We find no strong evidence that official flows crowd-in private ones. We conclude it is particularly important for developing countries to maintain prudent policies, and especially adequate fiscal discipline, to avoid vicious and reinforce virtuous cycles.

Suggested Citation

  • Andrew Powell & Dilip Ratha & Sanket Mohapatra, 2002. "Capital Inflows and Capital Outflows: Measurement, Determinants, Consequences," Business School Working Papers veinticinco, Universidad Torcuato Di Tella.
    • Handle: RePEc:udt:wpbsdt:veinticinco
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    References listed on IDEAS

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    Cited by:

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    2. Olivier Blanchard & Gustavo Adler & Irineu de Carvalho Filho, 2015. "Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?," NBER Working Papers 21427, National Bureau of Economic Research, Inc.
    3. Caporin, Massimiliano & Costola, Michele & Jannin, Gregory & Maillet, Bertrand, 2018. "“On the (Ab)use of Omega?”," Journal of Empirical Finance, Elsevier, vol. 46(C), pages 11-33.
    4. Cavallo, Eduardo & Powell, Andrew & Pedemonte, Mathieu & Tavella, Pilar, 2015. "A new taxonomy of Sudden Stops: Which Sudden Stops should countries be most concerned about?," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 47-70.
    5. Andrew Powell & Pilar Tavella, 2015. "Capital Inflow Surges in Emerging Economies: How Worried Should Latin America and the Caribbean Be?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-37, February.
    6. Love, Inessa & Zicchino, Lea, 2002. "Financial development and dynamic investment behavior : evidence from panel vector autoregression," Policy Research Working Paper Series 2913, The World Bank.
    7. Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2013. "Gross capital flows: Dynamics and crises," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 113-133.
    8. Andrew Powell & Pilar Tavella, 2012. "Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be?," Research Department Publications 4782, Inter-American Development Bank, Research Department.
    9. Suhas Ketkar & Dilip Ratha, 2009. "Innovative Financing for Development," World Bank Publications, The World Bank, number 6549, November.
    10. Massimiliano Caporin & Grégory M. Jannin & Francesco Lisi & Bertrand B. Maillet, 2014. "A Survey On The Four Families Of Performance Measures," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 917-942, December.
    11. Olivier Blanchard & Gustavo Adler & Irineu de Carvalho Filho, 2015. "Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?," NBER Working Papers 21427, National Bureau of Economic Research, Inc.
    12. Ratha, Dilip & Mohapatra, Sanket & Plaza, Sonia, 2008. "Beyond aid : new sources and innovative mechanisms for financing development in Sub-Saharan Africa," Policy Research Working Paper Series 4609, The World Bank.
    13. Andrew Powell & Pilar Tavella, 2012. "Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be?," Research Department Publications 4782, Inter-American Development Bank, Research Department.

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