Large Capital Inflows, Sectoral Allocation, and Economic Performance

52 Pages Posted: 25 Apr 2015

See all articles by Gianluca Benigno

Gianluca Benigno

Federal Reserve Bank of New York; London School of Economics & Political Science (LSE) - Department of Economics

Nathan Converse

Board of Governors of the Federal Reserve System

Luca Fornaro

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics (Barcelona GSE)

Multiple version iconThere are 2 versions of this paper

Date Written: March 30, 2015

Abstract

​This paper studies episodes of exceptionally large capital inflows. We find that these events are typically accompanied by an economic boom, and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode.

Keywords: Capital Flows, Surges, Sectoral Allocation, Sudden Stops

JEL Classification: F31, F32, F41, O41

Suggested Citation

Benigno, Gianluca and Benigno, Gianluca and Converse, Nathan and Fornaro, Luca, Large Capital Inflows, Sectoral Allocation, and Economic Performance (March 30, 2015). FRB International Finance Discussion Paper No. 1132, Available at SSRN: https://ssrn.com/abstract=2598265 or http://dx.doi.org/10.2139/ssrn.2598265

Gianluca Benigno

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

London School of Economics & Political Science (LSE) - Department of Economics

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7807 (Phone)

Nathan Converse (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Luca Fornaro

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
60
Abstract Views
656
Rank
643,103
PlumX Metrics