Analyzing Capital Flow Drivers Using the ‘At-Risk’ Framework: South Africa’s Case

October 22, 2021

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Format: Chicago

Rohit Goel, and Ken Miyajima. Analyzing Capital Flow Drivers Using the ‘At-Risk’ Framework: South Africa’s Case, (USA: International Monetary Fund, 2021) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Cross-border capital flows are important for South Africa. They fund the nation’s relatively large external financing needs and have important financial stability implications evidenced by the large capital outflows and asset price selloffs during the COVID-19 pandemic. This paper adds to the literature on the drivers of South Africa’s capital flows by applying the ‘at-risk’ framework––which differentiates between the likelihood of “extreme” inflows (surges) and outflows (reversals) and of “typical” flows––to both nonresident and resident capital flows. Estimated results show that among nonresident flows, the portfolio debt component is most sensitive to changes in external risk sentiment particularly during reversals. This applies to flows to the sovereign sector. Nonresident equity flows, both portfolio and FDI, are most sensitive to domestic economic activity especially during surges. This applies to flows to the corporate and banking sectors. Results also suggest that resident flows, in particular the FDI component, tend to offset nonresident flows, thus acting as buffers against funding withdrawal during periods of global risk aversion.

Subject: Balance of payments, Capital flows, Capital inflows, Capital outflows, Foreign direct investment, Portfolio investment

Keywords: Africa, Capital flows, Capital flows, Capital flows at risk, Capital inflows, Capital outflows, Capital-flows-at-risk framework, COVID-19 pandemic, Emerging markets, Financial stability, Flow cycle, Flow distribution, Flow reversal, Foreign direct investment, Global, IMF staff calculation, Portfolio debt component, Portfolio investment, Quantile regression, South Africa.

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/253
Stock No:

WPIEA2021253
ISBN:

9781589065888
ISSN:

1018-5941

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