Changing Times for Frontier Markets: A Perspective from Portfolio Investment Flows and Financial Integration

38 Pages Posted: 9 Dec 2016

See all articles by Nordine Abidi

Nordine Abidi

International Monetary Fund ; affiliation not provided to SSRN

Burcu Hacibedel

IMF

Mwanza Nkusu

International Monetary Fund (IMF)

Date Written: August 2016

Abstract

This paper investigates to what extent low-income developing countries (LIDCs) characterized as frontier markets (FMs) have begun to be subject to capital flows dynamics typically associated with emerging markets (EMs). Using a sample of developing countries covering the period 2000-14, we show that: (i) average annual portfolio flows to FMs as a share of GDP outstripped those to EMs by about 0.6 percentage points of GDP; (ii) during years of heightened stress in global financial markets, portfolio flows to FMs dried up like those to EMs; and that (iii) FMs have become more integrated into international financial markets. Our findings confirm that, in terms of portfolio flows, FMs have become more similar to EMs than to the rest of LIDCs and are therefore more vulnerable to swings in global financial markets conditions. Accordingly, it is important to have in place frameworks to strengthen FMs' resilience to adverse capital flows shocks.

Keywords: Private investments, Low-income developing countries, Foreign direct investment, Capital flows, Economic integration, Time series, Econometric models, Frontier Markets, Portfolio flows, Financial Integration, Balance of Payments Needs.

JEL Classification: E44, F30, G00, O57

Suggested Citation

Abidi, Nordine and Hacibedel, Burcu and Nkusu, Mwanza, Changing Times for Frontier Markets: A Perspective from Portfolio Investment Flows and Financial Integration (August 2016). IMF Working Paper No. 16/177, Available at SSRN: https://ssrn.com/abstract=2882615

Nordine Abidi (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington DC
United States

affiliation not provided to SSRN

Burcu Hacibedel

IMF ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Mwanza Nkusu

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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