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Are Capital Flows Fickle? Increasingly? And Does the Answer Still Depend on Type?

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  • Barry Eichengreen

    (Department of Economics University of California Berkeley, CA 94720, USA Author email: eichengr@berkeley.edu)

  • Poonam Gupta

    (World Bank Washington, DC Author email: pgupta5@worldbank.org)

  • Oliver Masetti

    (World Bank Washington, DC Author email: omasetti@worldbank.org)

Abstract

According to conventional wisdom, capital flows are fickle. Focusing on emerging markets, we ask whether this conventional wisdom still holds in our contemporary world. Our results show that, despite recent structural and regulatory changes, much of it survives. Foreign direct investment (FDI) inflows are more stable than non-FDI inflows. Within non-FDI inflows, portfolio debt and bank-intermediated flows remain the most volatile. Whereas FDI inflows are driven mainly by pull factors, portfolio debt and equity are driven mainly by push factors; bank-intermediated flows are driven a combination of push and pull factors. Capital outflows from emerging markets behave differently, however. FDI outflows from emerging markets have grown and become significantly more volatile. There is similarly an increase in the volatility of bank-intermediated capital outflows from emerging markets. Our findings underscore that outflows from emerging markets, both FDI and bank-related flows, have come to play a growing role and warrant greater attention from analysts and policymakers.

Suggested Citation

  • Barry Eichengreen & Poonam Gupta & Oliver Masetti, 2018. "Are Capital Flows Fickle? Increasingly? And Does the Answer Still Depend on Type?," Asian Economic Papers, MIT Press, vol. 17(1), pages 22-41, Winter/Sp.
    • Handle: RePEc:tpr:asiaec:v:17:y:2018:i:1:p:22-41
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    1. Barry Eichengreen & Poonam Gupta, 2018. "Managing Sudden Stops," Central Banking, Analysis, and Economic Policies Book Series, in: Enrique G. Mendoza & Ernesto Pastén & Diego Saravia (ed.),Monetary Policy and Global Spillovers: Mechanisms, Effects and Policy Measures, edition 1, volume 25, chapter 2, pages 009-047, Central Bank of Chile.
    2. Bank for International Settlements, 2008. "Volatility and persistence of capital flows," BIS Papers chapters, in: Bank for International Settlements (ed.), Regional financial integration in Asia: present and future, volume 42, pages 159-180, Bank for International Settlements.
    3. Olivier Blanchard & Julien Acalin, 2016. "What Does Measured FDI Actually Measure?," Policy Briefs PB16-17, Peterson Institute for International Economics.
    4. Chalongphob Sussangkarn, 2017. "Managing Economic Stability under Volatile Capital Flows: East Asia Perspectives," Asian Economic Papers, MIT Press, vol. 16(1), pages 174-192, Winter/Sp.
    5. Mr. John C Bluedorn & Rupa Duttagupta & Mr. Jaime Guajardo & Petia Topalova, 2013. "Capital Flows are Fickle: Anytime, Anywhere," IMF Working Papers 2013/183, International Monetary Fund.
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