Are Capital Flows Fickle? Increasingly? And Does the Answer Still Depend on Type?

29 Pages Posted: 27 Feb 2017

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Poonam Gupta

World Bank

Oliver Masetti

World Bank

Date Written: February 15, 2017

Abstract

According to conventional wisdom, capital flows are fickle. Focusing on emerging markets, this paper asks whether this conventional wisdom still holds in the contemporary world. The results show that, despite recent structural and regulatory changes, much of it survives. FDI inflows are more stable than non-FDI inflows. Within non-FDI inflows, portfolio debt and bank-intermediated flows remain the most volatile. While FDI inflows are driven mainly by pull factors, portfolio debt and equity are driven mainly by push factors; and bank-intermediated flows are driven by a combination of push and pull factors. But capital outflows from emerging markets behave differently. FDI outflows from emerging markets have grown and become significantly more volatile. There is similarly an increase in the volatility of bank-intermediated capital outflows from emerging markets. The findings underscore that outflows from emerging markets, both FDI and bank-related flows, have come to play a growing role and warrant greater attention from analysts and policy makers.

Suggested Citation

Eichengreen, Barry and Gupta, Poonam and Masetti, Oliver, Are Capital Flows Fickle? Increasingly? And Does the Answer Still Depend on Type? (February 15, 2017). World Bank Policy Research Working Paper No. 7972, Available at SSRN: https://ssrn.com/abstract=2923525

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

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Berkeley, CA 94720
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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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Poonam Gupta

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Oliver Masetti

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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