Real Effects of Capital Inflows in Emerging Markets

By Deniz O Igan, Ali M. Kutan, Ali Mirzaei

December 6, 2016

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Format: Chicago

Deniz O Igan, Ali M. Kutan, and Ali Mirzaei. Real Effects of Capital Inflows in Emerging Markets, (USA: International Monetary Fund, 2016) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We examine the association between capital inflows and industry growth in a sample of 22 emerging market economies from 1998 to 2010. We expect more external finance dependent industries in countries that host more capital inflows to grow disproportionately faster. This is indeed the case in the pre-crisis period of 1998–2007, and is driven by debt, rather than equity, inflows. We also observe a reduction in output volatility but this association is more pronounced for equity, rather than debt, inflows. These relationships, however, break down during the crisis, hinting at the importance of an undisrupted global financial system for emerging markets to harness the growth benefits of capital inflows. In line with this observation, we also document that the inflows-growth nexus is stronger in countries with well-functioning banks.

Subject: Balance of payments, Capital flows, Capital inflows, Commercial banks, Credit, Financial institutions, Foreign direct investment, Money

Keywords: Bank lending, Capital flow, Capital flows, Capital inflows, Commercial bank, Commercial banks, Credit, Debt inflow, Emerging economies, Equity capital, Equity inflow, Financial dependence, Foreign direct investment, Global, Increase capital allocation efficiency, Industry growth, Portfolio investment, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/235
Stock No:

WPIEA2016235
ISBN:

9781475558555
ISSN:

1018-5941

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