Are there different linkages of foreign capital inflows and the current account between industrial countries and emerging markets?

2011 ◽  
Vol 43 (1) ◽  
pp. 25-54 ◽  
Author(s):  
Ho-don Yan ◽  
Cheng-lang Yang
Keyword(s):  
Emerging Markets ◽  
Current Account ◽  
Foreign Capital ◽  
Capital Inflows ◽  
Industrial Countries ◽  
Foreign Capital Inflows ◽  
The Current Account

Foreign Capital Flows to Emerging Markets: a Test of Policy Arbitrage

2004 ◽  
Vol 5 (1) ◽  
pp. 21-32
Author(s):  
Anand Shetty ◽  
John Manley
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Foreign Capital ◽  
Capital Inflows ◽  
Economic Policies ◽  
National Economic ◽  
Foreign Capital Flows ◽  
Foreign Capital Inflows ◽  
Mexican Peso

Private capital that dominated the foreign capital inflows to emerging markets in the 1990s has been linked to recent financial crises in these markets. This linkage has raised questions about the market’s ability to discipline the flow of capital to emerging markets and the role of policy arbitrage. Policy-arbitrage hypothesis states that international capital flows will arbitrage across national economic policies in search of sound markets. This paper examines the pattern of changes in the foreign capital inflows to emerging markets in the 1990s and tests the policy-arbitrage hypothesis using 22 country-data for a period immediately following the Mexican peso crisis. The test results support the policy-arbitrage hypothesis.

scholarly journals The impact of foreign capital shifts on economic activities and asset prices: a threshold VAR approach

2020 ◽  
Vol 4 (3) ◽  
pp. 87-104
Author(s):  
Boubekeur Baba ◽  
Güven Sevil
Keyword(s):  
South Korea ◽  
Emerging Markets ◽  
Asset Prices ◽  
Foreign Capital ◽  
Emerging Market ◽  
Capital Inflows ◽  
Economic Activities ◽  
Content Type ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of foreign capital shifts on economic activities and asset prices in South Korea. Design/methodology/approach The authors in this paper apply the Bayesian threshold vector autoregressive (TVAR) model to estimate the regimes of large and low inflows of foreign capital. Then, structural impulse-response analysis is used to check whether the responses of the variables differ across the estimated regimes. The model is estimated using quarterly data of foreign capital inflows, gross domestic product (GDP), consumer price index, credit to the private non-financial sector, real effective exchange rate (REER), stock returns and house prices. Findings The main findings suggest that large inflows of gross foreign capital, foreign direct investments (FDI) and foreign portfolio investments (FPI) are ineffective to boost economic growth, but large inflows of other foreign investments (OFIs) significantly contribute to GDP. The decreases in the foreign capital inflows are associated with larger depreciation of REER. The large inflows of gross foreign capital, FDI and OFIs are associated with further expansion of credit supply to private non-financial sectors. Research limitations/implications The policy implications of foreign capital inflows are of particular importance to all the emerging markets alike. However, the empirical analysis is limited to the case of South Korea due to various reasons. The experience with international capital inflows among emerging markets is heterogeneous. Therefore, it would be better to take each case of emerging market individually. In addition, TVAR analysis requires a long data sample, which unfortunately is not available for most of the emerging markets. Originality/value The foreign capital inflows are shown to be procyclical and notoriously volatile in many studies. Nevertheless, this topic has commonly been studied using linear VAR models, which do not properly deal with the cyclical characteristics of foreign capital inflows. This study attempts to resolve these methodological limitations by examining a non-linear VAR model that is capable of capturing the structural breaks associated with the cyclical behaviors of foreign capital inflows.

Fiscal stance, foreign capital inflows and the behavior of current account in the Asian countries

2017 ◽  
Vol 56 (2) ◽  
pp. 523-549
Author(s):  
Ahmad Zubaidi Baharumshah ◽  
Siew-Voon Soon ◽  
Mark E. Wohar
Keyword(s):  
Current Account ◽  
Foreign Capital ◽  
Capital Inflows ◽  
Asian Countries ◽  
Foreign Capital Inflows

scholarly journals Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

Economies ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 179
Author(s):  
Immaculate Simiso Nxumalo ◽  
Patricia Lindelwa Makoni
Keyword(s):  
Emerging Markets ◽  
Foreign Capital ◽  
Institutional Environment ◽  
Emerging Market ◽  
Composite Index ◽  
Institutional Quality ◽  
Capital Inflows ◽  
Distributed Lag ◽  
Long Run ◽  
Foreign Capital Inflows

This study investigates the cointegrating and causality relationships between foreign direct investment (FDI), foreign portfolio investment (FPI) and institutional quality in a sample of 12 emerging market economies for the period from 2007 to 2017. A composite index for institutional quality composed of the Worldwide Governance Indicators was constructed using the Principal Components Analysis (PCA) method. The panel autoregressive distributed lag (ARDL) model and the error correction model (ECM) were applied to assess the cointegrating and causal relationships between the key variables. In addition to finding significant cointegrating relationships between institutional quality and the foreign capital inflows (FDI and FPI), the results confirmed unidirectional causality from FDI and FPI to institutional quality in the long run. The results further suggested that the long-run relationship between the two foreign capital inflows was more of a trade-off nature, dependent upon the dynamics of the institutional environment in the host economy. The recommendations suggested include that emerging markets should continue to open their economies in pursuit of capital inflows, which will reciprocally strengthen their domestic institutional environment. Strengthening institutions could curtail the persistence of institutional weaknesses and insulate emerging economies from the adverse effects of volatile capital flows and, over the long run, enhance capital inflows.

Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality

2021 ◽  
Vol 7 (3) ◽  
Author(s):  
Immaculate Simiso Nxumalo ◽  
Patricia Lindelwa Makoni
Keyword(s):  
Economic Growth ◽  
Emerging Markets ◽  
Foreign Capital ◽  
Emerging Market ◽  
Institutional Quality ◽  
Capital Inflows ◽  
Emerging Market Economies ◽  
Market Economies ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose: The purpose of the study was to examine the key determinants of foreign direct investment (FDI) and foreign portfolio investment (FPI) in emerging market economies, with greater emphasis placed on the impact of institutional quality. Design/Methodology/Approach: The study applied a panel data system generalised method of moments (GMM) model using annual data spanning the period 2007 to 2017, in respect of 12 emerging market economies. To measure institutional quality, the study adopted the Worldwide Governance Indicators, and constructed a composite index for institutional quality using the Principal Components Analysis (PCA) method. Findings: The results revealed that FDI in the selected emerging markets was attracted by institutional quality and economic growth. Capital account openness, institutional quality and economic growth were positive determinants of FPI. However, stock market development stood out as the key determinant factor for foreign capital inflows. Implications/Originality/Value: The implications of these findings are that, in their pursuit of foreign capital inflows, these emerging markets should continue to liberalise their economies and develop their financial markets. Importantly, such developments must be coupled with the strengthening of the formal governance institutions. Robust institutions would not only curb institutional weaknesses that deter international capital inflows, but would also insulate emerging markets from unfavourable effects of volatile capital flows.                                                            

scholarly journals THE INFLOW OF FOREIGN INVESTMENT AS A FACTOR OF DEVELOPMENT IN INDIA

2021 ◽  
Author(s):  
Tetiana Rodionova ◽  
Anastasiia Pyrohova
Keyword(s):  
Economic Growth ◽  
Economic Development ◽  
Regression Analysis ◽  
Current Account ◽  
Foreign Capital ◽  
Regional Distribution ◽  
Investment Income ◽  
Foreign Capital Inflows ◽  
The Impact ◽  
The Current Account

With the transformation of international capital markets, developing countries have become recipients of significant inflows of foreign direct investment (FDI). In recent decades, India has shown the highest growth rate of FDI stock among the BRICS countries. The inflow of foreign capital has become a determining factor of economic development in many countries. Therefore, the aim of this study was to analyze the impact of foreign capital inflows in the form of FDI on the Indian economy during 2000-2020 years. Specifically this period was chosen for the research because it is characterized by the intensification of investment flows to the country. The article analyzes the dynamics, structure, sectoral and regional distribution of FDI flows to India. The results of investment activities of non-residents in the country were also considered in the study. Dividends and withdrawals from income of quasi corporations were found to have increased to record levels in recent years. Investment income payments to non-residents are small relative to total current account liabilities. However, if this trend intensifies, it will negatively affect the current account, which has constantly remained in deficit over the past decade. To determine the role of foreign capital in the economic development of India, a number of regression models were built. Regression analysis of selected items of the current account was carried out to determine the existence of a relationship between FDI flows and the state of the country’s balance of payments. The results of the study confirmed the existence of a significant relationship between FDI and exports, imports and payments of investment income to non-residents. It was also found that FDI inflows contribute more to the formation of export than import. To assess the impact of FDI on India’s economic growth, a regression model for the formation of GDP was built based on the Cobb-Douglas production function. The regression analysis of India’s GDP confirmed a significant positive dependence of GDP on FDI, but showed that foreign capital plays a relatively modest role in the country’s economic growth.

Foreign capital inflows and economic growth: the experience of low-income countries in Sub Saharan Africa

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Atif Awad
Keyword(s):  
Low Income ◽  
Foreign Capital ◽  
Ordinary Least Squares ◽  
Capital Inflows ◽  
Sub Saharan Africa ◽  
Low Income Countries ◽  
Content Type ◽  
Long Run ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose This paper aims to investigate the long-run impact of selected foreign capital inflows, including aid, remittances, foreign direct investment (FDI), trade and debt, on the economic growth of 21 low-income countries in the Sub Saharan Africa (SSA) region, during the period 1990–2018. Design/methodology/approach To obtain this objective and for robust analysis, a parametric approach, which was dynamic ordinary least squares, and a non-parametric technique, which was fully modified ordinary least squares, were used. Findings The results of both models confirmed that, in the long run, trade and aid affected the growth rate of the per capita income in these countries in a positive way. However, external debt seemed to have an adverse influence on such growth. Originality/value First, this is the initial study that has addressed this matter across a homogenous group of countries in the SSA region. Second, while most of the previous studies regarding capital inflows into the SSA region have focused on the impact of only one or two aspects of such foreign capital inflows on growth, the present study, instead, examined the impact of five types of foreign capital inflows (aid, remittances, FDI, trade and debt).

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