Gross Capital Flows: Dynamics and Crises

52 Pages Posted: 29 Apr 2011

See all articles by Fernando Broner

Fernando Broner

CREI; Barcelona GSE; Universitat Pompeu Fabra; CEPR

Tatiana Didier

World Bank

Aitor Erce

European Union - European Investment Bank; European University Institute

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 3 versions of this paper

Date Written: April 28, 2011

Abstract

This paper analyzes the joint behavior of international capital flows by foreigners and domestic agents over the business cycle and during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile relative to net capital flows. Namely, when foreigners invest in a country domestic agents tend to invest abroad, and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, especially during severe ones, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This evidence sheds light on the nature of the shocks driving international capital flows and discriminates among existing theories. Our findings are consistent with shocks that affect foreigners and domestic agents asymmetrically - e.g. sovereign risk and asymmetric information - over productivity shocks.

Keywords: gross capital flows, net capital flows, domestic investors, foreign investors, crises

JEL Classification: F21, F32

Suggested Citation

Broner, Fernando and Didier, Tatiana and Erce, Aitor and Schmukler, Sergio, Gross Capital Flows: Dynamics and Crises (April 28, 2011). Banco de Espana Working Paper No. 1039. Available at SSRN: https://ssrn.com/abstract=1825011 or http://dx.doi.org/10.2139/ssrn.1825011

Fernando Broner

CREI ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
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HOME PAGE: http://www.crei.cat/people/broner

Barcelona GSE

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 2601 (Phone)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
+34 93 542 2601 (Phone)

HOME PAGE: http://www.crei.cat/people/broner

CEPR ( email )

London
United Kingdom
+34 93 542 2601 (Phone)

Tatiana Didier

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States
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Aitor Erce (Contact Author)

European Union - European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
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European University Institute ( email )

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Italy

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

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Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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