Capital flow to emerging economies and the domestic financial development
DOI:
https://doi.org/10.1590/0101-416147212kamKeywords:
emerging economies, capital flow, sudden stops, strength of domestic financial systemAbstract
The objective of this is study is to assert the role of domestic financial system as mitigating
of sudden stops episodes and driver of capital flows in a group of 14 emerging economies
in the period of 1999-2013, especially in face of unfavorable external environment such
as high international interest rate or global risk aversion. The countries analyzed – Argentina,
Brazil, Chile, Colombia, Indonesia, Malaysia, Mexico, Peru, Philippines, Russia, South
Africa, Thailand, Turkey and Ukraine, represented in August 2014 roughly 80% of the
EMBIPLUS and 60% of EMBIGLOBAL. We work with distinct types of capital flows: Inflow
of Foreign Direct Investment, Inflow of Portfolio and Net Capital, and conduct robustness
check considering data since 1990 and increasing the number of emerging countries. The
result supports evidence that improvement of domestic financial system allows an increase
of capital flow and a decrease of sudden stops probability. Estimates also indicate that
domestic fundamentals are as important as global factors in explaining capital flows and
sudden stops episodes. This fact supports public policies that improve the development and
strength of domestic financial system in emerging economies and stress the government
role in attracting external capital.
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Copyright (c) 2017 Katia Rocha, Ajax Moreira, Marcos Silveira
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