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Effects of Financialization of Energy Markets on International Capital Flows in Emerging Economies

Author

Listed:
  • Tokuo Iwaisako

    (Professor, Institute of Economic Research, Hitotsubashi University)

  • Huan Li

    (Ph.D. student, Graduate School of Economics, Hitotsubashi University)

Abstract

This paper analyzes the effects of energy prices on capital flows in emerging market economies (EMEs) by examining economic factors behind energy price fluctuations. Adopting Kilian’s identification strategy for VAR, we decompose the crude oil price changes into three structural shock factors―the supply factor, the real-economy demand factor and the price change specific to the crude oil market―and conduct a panel estimation including those structural factors as explanatory variables. We find that the effects of price changes specific to the crude oil market have been strong after 1990, in the sample period examined in this paper. Estimating the same regressions for individual countries’ data, we also find that price changes specific to the crude oil market have had clear positive effects on capital inflows into emerging countries heavily dependent on imports for crude oil supply, rather than oil-exporting ones. This finding is inconsistent with the interpretation by previous studies that the positive correlation between capital inflows into emerging countries and energy prices is due to the prevalence of resource-exporting countries among emerging countries.

Suggested Citation

  • Tokuo Iwaisako & Huan Li, 2019. "Effects of Financialization of Energy Markets on International Capital Flows in Emerging Economies," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 15(1), pages 21-34, July.
    • Handle: RePEc:mof:journl:ppr15_01_02
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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