Figure 4. Net Capital Inflows and Reserve Accumulation, Emerging and Developing Economies (as percent of GDP)
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Capital Inflows Reserve Accumulation
3. Factors Driving Capital Flows What has driven these large and volatile flows? A large literature has emerged over the past two decades that addresses this question. Although this literature has not reached a clear consensus, there are signs that one may be beginning to emerge more recently. To understand why it has proven difficult to pin down the factors driving these flows, it is important to emphasize that the volume of capital flows into or out of a country is an endogenous macroeconomic variable. Consequently, inflows and outflows could in principle be driven by a broad array of factors. It is useful to classify these into three types: •
“Push” factors
“Push” factors are those that lower the supply price of funds from creditor countries. This refers primarily to changes in financial conditions in those countries or in the international financial environment more generally that create incentives for agents in those economies to invest abroad. “Push” factors may 7