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Investigating the relationship between financial liberalization and capital flow waves: A panel data analysis

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  • Yang, Haizhen
  • Shi, Fangfang
  • Wang, Jie
  • Jing, Zhongbo

Abstract

This paper examines whether financial liberalization predisposes countries to capital flow waves. After identifying the waves of FDI, portfolio and other flows, we investigate the relationships between those waves and financial liberalization. Our results demonstrate that waves of these three kinds of capital flows respond quite differently to financial liberalization. Specifically, in emerging countries, surges for the type of other flows show a higher propensity following financial liberalization, while the likelihood of surge episodes of portfolio flows significantly decrease for developed countries. In addition, liberalization may eventually trigger capital flight in portfolio flows in emerging economies. Our conclusions are tested for various scenarios and prone to be robust.

Suggested Citation

  • Yang, Haizhen & Shi, Fangfang & Wang, Jie & Jing, Zhongbo, 2019. "Investigating the relationship between financial liberalization and capital flow waves: A panel data analysis," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 120-136.
    • Handle: RePEc:eee:reveco:v:59:y:2019:i:c:p:120-136
    DOI: 10.1016/j.iref.2018.08.011
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    Cited by:

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    2. Mengting Zhang & Andreas Steiner & Jakob de Haan & Haizhen Yang, 2024. "Capital flow reversals and currency crises: Do capital flow types matter?," Review of International Economics, Wiley Blackwell, vol. 32(4), pages 1787-1823, September.
    3. Ahmet Ihsan Kaya & Lutfi Erden & Ibrahim Ozkan, 2022. "Detecting capital flow surges in developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3510-3530, July.
    4. Sun, Guanglin & Yao, Xiaoyang & Li, Jianfeng & Lu, Tongyu, 2023. "Risk linkages between China's stock market and APEC stock markets under China's market liberalization," Finance Research Letters, Elsevier, vol. 52(C).
    5. Özmen, Erdal & Taşdemir, Fatma, 2024. "Globalisation and governance: Thresholds for the impacts of the main determinants of capital inflows?," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 168-176.

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    More about this item

    Keywords

    Financial liberalization; Capital flows; Extreme volatility; Panel data analysis;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F39 - International Economics - - International Finance - - - Other
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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