Does the Relative Importance of Push and Pull Factors of Foreign Capital Flows Vary Across Quantiles?

Abstract

We empirically gauge the relative importance of global and domestic determinants of foreign flows to 51 Emerging Markets across quantiles. We propose a quantile regression dynamic panel model with fixed effects, to reconcile mixed results in the literature. We find that push factors are associated with the occurrence of extreme movements, and pull factors are significantly related to the magnitude of surges/stops. During stress episodes of low foreign inflows, we find strong evidence of investor differentiation among emerging economies according to their fundamentals. Such results call for monitoring capital flows’ sustainability and building strong fundamentals.

Keywords: Foreign flows; Emerging market; Surge; Sudden stop; Global financial cycle

JEL Classification: E44; F21; F32; G1