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Determinants of Capital Flows: A Cross-Country Analysis

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Abstract

There are two basic approaches to identifying the determinants of capital flows, viz. the traditional and the portfolio (or modern) approach. Although most econometric models have by now forsaken the traditional capital flow equations in favour of modelling financial linkages via arbitrage type interest rate parity relations, the importance of fundamentals in explaining particular capital flow developments cannot be denied (International Monetary Fund, 1992). This paper identifies the determinants of capital flows using the conventional approach, and is based on a cross-sectional study of eight countries, viz. Australia, India, Indonesia, Argentina, Brazil, Chile, Columbia and Mexico. Non-linear Seemingly Unrelated Regression estimation has been used to allow for cross-country effects in the error structure.

Suggested Citation

  • Mukesh Ralhan, 2006. "Determinants of Capital Flows: A Cross-Country Analysis," Econometrics Working Papers 0601, Department of Economics, University of Victoria.
  • Handle: RePEc:vic:vicewp:0601
    Note: ISSN 1485-6441
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    File URL: http://www.uvic.ca/socialsciences/economics/assets/docs/econometrics/ewp0601.pdf
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    References listed on IDEAS

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    1. Karl Brunner, 1989. "The role of money and monetary policy," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 4-22.
    2. Thirlwall, Anthony P & Hussain, Mohammed Nureldin, 1982. "The Balance of Payments Constraint, Capital Flows and Growth Rate Differences between Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 498-510, November.
    3. D. F. I. Folkerts-Landau & Donald J Mathieson & Morris Goldstein & Liliana Rojas-Suárez & José Saúl Lizondo & Timothy D. Lane, 1991. "Determinants and Systemic Consequences of International Capital Flows," IMF Occasional Papers 77, International Monetary Fund.
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    Cited by:

    1. Somrasri Yupho & Xianguo Huang, 2014. "Portfolio Capital Flows in Thailand: A Bayesian Model Averaging Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(2S), pages 89-99, March.

    More about this item

    Keywords

    Capital Flows; Seemingly Unrelated Regressions (SUR) Model;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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