CHAPTER 4
INTERNATIONAL CAPITAL FLOWS: RELIABLE OR FICKLE?
economies appear to have been the most persistent, whereas net flows to the other emerging economies have been the least persistent, but these differences are not statistically significant. Most notably, the persistence of flows to the median economy in each region has become more similar over time. Figure 4.20. The Relative Importance of Various Types of Flow across Emerging Market Regions
Appendix 4.3. Global Factor Model The following two models are estimated using cross-sectional ordinary least squares to identify the influence of (1) global factors and (2) global and regional factors on the variation in net capital flows to emerging market economies (EMEs) in any given year:33 Global factor model: yi,t = αt + εi,t
(4.2)
Global and regional factor model: yi,t = αt + ∑4j=1 β(t j)Dj + εi,t ,
(4.3)
The decline in the importance of bank and other private flows has been most pronounced in emerging Asian and Latin American economies. In emerging Europe, the share of bank and other private flows actually went up in the 2000s, while in other emerging market economies, it increased in the 1990s before falling in the 2000s. Foreign direct investment
Portfolio equity flows
Portfolio debt flows
Bank and other private flows 100
where yi,t is the level of net capital flows (scaled by GDP) in economy i at time t; αt is a time dummy capturing the common global factor across all EMEs (i) at time t; β(t j) is the regional factor common to all economies within region ( j) at time t; Dj is a dummy for region j; and εi,t is a mean zero error term. The models are estimated for a sample of 20 AEs in each year: the 23 economies listed in Table 4.1, excluding Belgium because of lack of data, and the financial centers, Luxembourg and Switzerland. For EMEs, the models are estimated for each year between 1980 and 1993 for 36 economies—the 59 economies listed in Table 4.2, excluding eastern Europe, the Commonwealth of Independent States (CIS), the financial centers, and other countries for which data are lacking.34 For every year after 1994, 33This
(Percent of total)
section draws on Abiad (1996). EMEs are divided into four geographic regions—Asia, Latin America, Europe, and other (mainly CIS, Middle Eastern, and African economies) as listed in Table 4.2. 34The excluded eastern European and CIS economies are Belarus, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovak Republic, Slovenia, and Ukraine. The excluded financial centers are Costa Rica, Cyprus, Hong Kong SAR, Lebanon, Malta, Panama, and Singapore. The economies excluded because of a lack of data are Angola, Azerbaijan, the Islamic Republic of Iran, Iraq, Kazakhstan, Qatar, Serbia, Trinidad, and Turkmenistan.
80
60
40
20
1980s1990s2000s 1980s1990s2000s 1980s1990s2000s 1980s1990s2000s Emerging Asia
Emerging Latin America
Emerging Europe
0
Other emerging economies
Sources: IMF, Balance of Payments Statistics; national sources; and IMF staff calculations. Note: The relative importance of a particular type of flow is calculated as the absolute value of the net flows of that type to the economies of the group divided by the sum of the absolute value of the net flows of all four types of instruments to the economies of the group. Ratios are calculated for each decade with annual data, computing both numerator and denominator over the years in each decade. Derivative flows, which comprise a very small share of the financial account, are excluded from the calculation. The group aggregates exclude offshore financial centers.
International Monetary Fund | April 2011
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