Research Article
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Year 2024, Volume: 8 Issue: 1, 65 - 86, 28.03.2024

Abstract

References

  • Anaya, P., Hachula, M., & Offermanns, C. J. (2017). Spillovers of US unconventional monetary policy to emerging markets: The role of capital flows. Journal of International Money and Finance, 73, 275– 295. https://doi.org/10.1016/j.jimonfin.2017.02.008
  • Baek, I-M. (2006). Portfolio investment flows to Asia and Latin America: Pull, push or market sentiment? Journal of Asian Economics, 17(2), 363–373. https://doi.org/10.1016/j.asieco.2006.02.007
  • Baharumshah, A.Z., and Thanoon, M.A.-M. (2006). Foreign capital flows and economic growth in East Asian countries. China Economic Review, 17, 70-83. https://doi.org/10.1016/j.chieco.2005.09.001
  • Baum, C. F., Pundit, M., & Ramayandi, A. (2017). Capital flows and financial stability in emerging economies. ADB Economics Working Paper Series (522).
  • Blundell-Wignall, A., and Roulet, C. (2014). Problems in the international financial system. OECD Journal: Financial Market Trends, 2014 (1).
  • Calderon, C., and Kubota, M. (2013). Sudden stops: Are global and local investors alike? Journal of International Economics, 89(1), 122–142. https://doi.org/10.1016/j.jinteco.2012.05.010
  • Calvo, G. A. (1998). Capital flows and capital-market crisis: The simple economics of sudden stops. Journal of Applied Economics, 1(1), 35-54. https://doi.org/10.1080/15140.326.1998.12040516
  • Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1993). Capital inflows and real exchange rate appreciation in Latin America: the role of external factors. IMF Staff Papers, 40(1), 108–151.
  • Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1996). Inflows of capital to developing countries in the 1990s. Journal of Economics Perspectives, 10(2), 123-139. DOI: 10.1257/jep.10.2.123
  • Cerutti, E., Claessens, S., & Puy, D. (2019). Push factors and capital flows to emerging markets: why knowing your lender matters more than fundamentals. Journal of International Economics, 119, 133–149. https://doi.org/10.1016/j.jinteco.2019.04.006
  • Chuhan, P., Claessens, S., & Mamingi, N. (1998). Equity and bond flows to Latin America and Asia: the role of global and country factors. Journal of Development Economics, 55(2), 439–463. https://doi. org/10.1016/S0304-3878(98)00044-3
  • Clark, J., Converse, N., Coulibaly, B., & Kamin, S. B. (2020). Emerging market capital flows and US monetary policy. International Finance, 23(1), 2–17. https://doi.org/10.1111/infi.12355
  • Datastream. (2023). Refinitiv-Eikon. Available at: Subscription service. Retrieved April 27, 2023.
  • Duttagupta, R., & Pazarbasioglu, C. (2021). Miles to go. Finance & Development, International Monetary Fund.
  • Fernandez-Arias, E. (1996). The new wave of private capital inflows: push or pull? Journal of Development Economics, 48(2), 389–418. https://doi.org/10.1016/0304-3878(95)00041-0
  • Forbes, K. J., & Warnock, F. E. (2012). Capital flow waves: Surges, stops, flight, and retrenchment. Journal of International Economics, 88(2), 235–251. https://doi.org/10.1016/j.jinteco.2012.03.006
  • Fratzscher, M. (2012). Capital flows, push versus pull factors, and the global financial crisis. Journal of International Economics, 88(2), 341–356. https://doi.org/10.1016/j.jinteco.2012.05.003
  • Frost, J., Ito, H., & Van Stralen, R. (2020). The effectiveness of macroprudential policies and capital controls against volatile capital inflows. DNB Working Paper (686).
  • Hlaing, S. W., & Kakinaka, M. (2019). Global uncertainty and capital flows: any difference between foreign direct investment and portfolio investment? Applied Economics Letters, 26(3), 202–209. https://doi. org/10.1080/13504.851.2018.1458182
  • IMF. (2023). International Financial Statistics. Retrieved April 10, 2023 from https://data.imf. org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b
  • Investing.com. (2023). CBOE Volatility Index (VIX). Retrieved April, 21, 2023 from https://tr.investing. com/indices/volatility-s-p-500
  • Kim, Y. (2000). Causes of capital flows in developing countries. Journal of International Money and Finance, 19(2), 235–253. https://doi.org/10.1016/S0261-5606(00)00001-2
  • Lim, J. J., Mohapatra, S., & Stocker, M. (2014). Tinker, taper, QE, bye? the effect of quantitative easing on financial flows to developing countries. World Bank Policy Research Working Paper (6820).
  • Norring, A. (2022). Taming the tides of capital – review of capital controls and macroprudential policy in emerging economies. Bank of Finland Economics Review.
  • Nugent, R. J. (2019). Restrictions on short-term capital inflows and the response of direct investment. Eastern Economic Journal, 45(3), 350–383.
  • Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2), 265-312. https://doi.org/10.1002/jae.951
  • Pesaran, M. H. (2021). General diagnostic tests for cross-section dependence in panels. Empirical Economics, 60 (1), 13-50. https://doi.org/10.1007/s00181.020.01875-7
  • Sui, Q.-Y. (2019). China’s economic growth and international capital flows. Public Policy Review, 15(1), 121- 149.
  • Turner, P. (1991). Capital flows in the 1980s: A survey of major trends. BIS Economics Papers, 30.
  • UNCTAD (2017). Global Investments Trend Monitor, No 25. 1 February 2017.

SUSTAINED CAPITAL FLOWS TO EMERGING MARKET ECONOMIES

Year 2024, Volume: 8 Issue: 1, 65 - 86, 28.03.2024

Abstract

A recurrent pattern in international economics is abundant global liquidity and capital flows, followed by monetary policy tightening and capital outflows from emerging markets (EMs). This pattern often results in exchange rate instability, balance of payment problems, and financial turbulences in EMs. This study aims to identify the determinants of sustained capital flows to EMs. To this end, episodes of sustained capital flows above a threshold value are used as binary variables in constructing a complementary logarithmic framework. The results indicate that to preserve capital inflows, EMs should maintain stable and positive gross domestic product (GDP) growth, restrain exchange rate volatility, and hold interest rates low. External factors, such as GDP growth rates and interest rates in developed countries, also affect capital flows to EMs. While EMs cannot affect external variables, maintaining a sound macroeconomic environment at home would insulate them from the financial turbulences generated by global factors.

References

  • Anaya, P., Hachula, M., & Offermanns, C. J. (2017). Spillovers of US unconventional monetary policy to emerging markets: The role of capital flows. Journal of International Money and Finance, 73, 275– 295. https://doi.org/10.1016/j.jimonfin.2017.02.008
  • Baek, I-M. (2006). Portfolio investment flows to Asia and Latin America: Pull, push or market sentiment? Journal of Asian Economics, 17(2), 363–373. https://doi.org/10.1016/j.asieco.2006.02.007
  • Baharumshah, A.Z., and Thanoon, M.A.-M. (2006). Foreign capital flows and economic growth in East Asian countries. China Economic Review, 17, 70-83. https://doi.org/10.1016/j.chieco.2005.09.001
  • Baum, C. F., Pundit, M., & Ramayandi, A. (2017). Capital flows and financial stability in emerging economies. ADB Economics Working Paper Series (522).
  • Blundell-Wignall, A., and Roulet, C. (2014). Problems in the international financial system. OECD Journal: Financial Market Trends, 2014 (1).
  • Calderon, C., and Kubota, M. (2013). Sudden stops: Are global and local investors alike? Journal of International Economics, 89(1), 122–142. https://doi.org/10.1016/j.jinteco.2012.05.010
  • Calvo, G. A. (1998). Capital flows and capital-market crisis: The simple economics of sudden stops. Journal of Applied Economics, 1(1), 35-54. https://doi.org/10.1080/15140.326.1998.12040516
  • Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1993). Capital inflows and real exchange rate appreciation in Latin America: the role of external factors. IMF Staff Papers, 40(1), 108–151.
  • Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1996). Inflows of capital to developing countries in the 1990s. Journal of Economics Perspectives, 10(2), 123-139. DOI: 10.1257/jep.10.2.123
  • Cerutti, E., Claessens, S., & Puy, D. (2019). Push factors and capital flows to emerging markets: why knowing your lender matters more than fundamentals. Journal of International Economics, 119, 133–149. https://doi.org/10.1016/j.jinteco.2019.04.006
  • Chuhan, P., Claessens, S., & Mamingi, N. (1998). Equity and bond flows to Latin America and Asia: the role of global and country factors. Journal of Development Economics, 55(2), 439–463. https://doi. org/10.1016/S0304-3878(98)00044-3
  • Clark, J., Converse, N., Coulibaly, B., & Kamin, S. B. (2020). Emerging market capital flows and US monetary policy. International Finance, 23(1), 2–17. https://doi.org/10.1111/infi.12355
  • Datastream. (2023). Refinitiv-Eikon. Available at: Subscription service. Retrieved April 27, 2023.
  • Duttagupta, R., & Pazarbasioglu, C. (2021). Miles to go. Finance & Development, International Monetary Fund.
  • Fernandez-Arias, E. (1996). The new wave of private capital inflows: push or pull? Journal of Development Economics, 48(2), 389–418. https://doi.org/10.1016/0304-3878(95)00041-0
  • Forbes, K. J., & Warnock, F. E. (2012). Capital flow waves: Surges, stops, flight, and retrenchment. Journal of International Economics, 88(2), 235–251. https://doi.org/10.1016/j.jinteco.2012.03.006
  • Fratzscher, M. (2012). Capital flows, push versus pull factors, and the global financial crisis. Journal of International Economics, 88(2), 341–356. https://doi.org/10.1016/j.jinteco.2012.05.003
  • Frost, J., Ito, H., & Van Stralen, R. (2020). The effectiveness of macroprudential policies and capital controls against volatile capital inflows. DNB Working Paper (686).
  • Hlaing, S. W., & Kakinaka, M. (2019). Global uncertainty and capital flows: any difference between foreign direct investment and portfolio investment? Applied Economics Letters, 26(3), 202–209. https://doi. org/10.1080/13504.851.2018.1458182
  • IMF. (2023). International Financial Statistics. Retrieved April 10, 2023 from https://data.imf. org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b
  • Investing.com. (2023). CBOE Volatility Index (VIX). Retrieved April, 21, 2023 from https://tr.investing. com/indices/volatility-s-p-500
  • Kim, Y. (2000). Causes of capital flows in developing countries. Journal of International Money and Finance, 19(2), 235–253. https://doi.org/10.1016/S0261-5606(00)00001-2
  • Lim, J. J., Mohapatra, S., & Stocker, M. (2014). Tinker, taper, QE, bye? the effect of quantitative easing on financial flows to developing countries. World Bank Policy Research Working Paper (6820).
  • Norring, A. (2022). Taming the tides of capital – review of capital controls and macroprudential policy in emerging economies. Bank of Finland Economics Review.
  • Nugent, R. J. (2019). Restrictions on short-term capital inflows and the response of direct investment. Eastern Economic Journal, 45(3), 350–383.
  • Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2), 265-312. https://doi.org/10.1002/jae.951
  • Pesaran, M. H. (2021). General diagnostic tests for cross-section dependence in panels. Empirical Economics, 60 (1), 13-50. https://doi.org/10.1007/s00181.020.01875-7
  • Sui, Q.-Y. (2019). China’s economic growth and international capital flows. Public Policy Review, 15(1), 121- 149.
  • Turner, P. (1991). Capital flows in the 1980s: A survey of major trends. BIS Economics Papers, 30.
  • UNCTAD (2017). Global Investments Trend Monitor, No 25. 1 February 2017.
There are 30 citations in total.

Details

Primary Language English
Subjects Applied Macroeconometrics
Journal Section Makaleler
Authors

Anıl Tuğral 0000-0001-9526-388X

Mete Han Yağmur 0000-0002-7630-6335

Early Pub Date March 21, 2024
Publication Date March 28, 2024
Submission Date October 31, 2023
Acceptance Date February 15, 2024
Published in Issue Year 2024 Volume: 8 Issue: 1

Cite

APA Tuğral, A., & Yağmur, M. H. (2024). SUSTAINED CAPITAL FLOWS TO EMERGING MARKET ECONOMIES. Journal of Research in Economics, 8(1), 65-86.