Globalization and the Increasing Correlation between Capital Inflows and Outflows

34 Pages Posted: 7 Sep 2017

See all articles by J. L. R. Davis

J. L. R. Davis

ANU College of Law

Eric van Wincoop

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: 2017-08-01

Abstract

The correlation between capital inflows and outflows has increased substantially over time in a sample of 128 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 14 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows and outflows is consistent with the data.

JEL Classification: F3, F4

Suggested Citation

Davis, J. L. R. and van Wincoop, Eric, Globalization and the Increasing Correlation between Capital Inflows and Outflows (2017-08-01). Globalization and Monetary Policy Institute Working Paper No. 323, Available at SSRN: https://ssrn.com/abstract=3029746 or http://dx.doi.org/10.24149/gwp323

J. L. R. Davis (Contact Author)

ANU College of Law ( email )

Canberra, Australian Capital Territory 0200
Australia

Eric Van Wincoop

University of Virginia - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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