Changing Times for Frontier Markets: A Perspective from Portfolio Investment Flows and Financial Integration

By Nordine Abidi, Burcu Hacibedel, Mwanza Nkusu

August 23, 2016

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Nordine Abidi, Burcu Hacibedel, and Mwanza Nkusu. Changing Times for Frontier Markets: A Perspective from Portfolio Investment Flows and Financial Integration, (USA: International Monetary Fund, 2016) accessed November 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

This paper investigates to what extent low-income developing countries (LIDCs) characterized as frontier markets (FMs) have begun to be subject to capital flows dynamics typically associated with emerging markets (EMs). Using a sample of developing countries covering the period 2000–14, we show that: (i) average annual portfolio flows to FMs as a share of GDP outstripped those to EMs by about 0.6 percentage points of GDP; (ii) during years of heightened stress in global financial markets, portfolio flows to FMs dried up like those to EMs; and that (iii) FMs have become more integrated into international financial markets. Our findings confirm that, in terms of portfolio flows, FMs have become more similar to EMs than to the rest of LIDCs and are therefore more vulnerable to swings in global financial markets conditions. Accordingly, it is important to have in place frameworks to strengthen FMs’ resilience to adverse capital flows shocks.

Subject: Balance of payments, Capital flows, Emerging and frontier financial markets, Financial integration, Financial markets, Globalization, Private capital flows

Keywords: Balance of Payments Needs, Capital flows, Crisis dummy, Emerging and frontier financial markets, Financial Integration, FM bond, FM group, FMS relative, Frontier Markets, Global, Global bond, Integration Hypothesis, Market beta, Portfolio flow, Portfolio flows, Private capital flows, Qualification criteria, Segmentation hypothesis, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/177
Stock No:

WPIEA2016177
ISBN:

9781475529548
ISSN:

1018-5941

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