Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You and Your Team.

Learn More →

Determinants of capital flows to developing countries: a structural VAR analysis

Determinants of capital flows to developing countries: a structural VAR analysis Purpose – The aim of the study is to investigate the relative significance of the determinants of disaggregated capital flows (foreign direct investment and portfolio flows) to five developing countries, across different time horizons. Design/methodology/approach – An empirically tractable structural VAR model of the determinants of capital flows is developed, and variance decomposition and impulse response analyses are used to investigate the temporal dynamic effects of shocks to push and pull factors on foreign direct investment and portfolio flows. Findings – Estimation of the model using quarterly data for the period 1976‐2001 provides evidence supporting the hypothesis that shocks to real variables of economic activity such as foreign output and domestic productivity are the most important forces explaining the variations in capital flows to developing countries. Research limitations/implications – These findings highlight the concomitant need for policy makers in developing countries to design domestic policy that accounts for both external and internal shocks to real variables of economic activity. Originality/value – Previous empirical studies on the determinants of capital flows to developing countries have mostly examined the capital flow variable in aggregate, and have largely overlooked the possibility that the relative significance of estimated coefficients of such determinants may vary across time horizons. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Determinants of capital flows to developing countries: a structural VAR analysis

Journal of Economic Studies , Volume 35 (4): 19 – Sep 5, 2008

Loading next page...
 
/lp/emerald-publishing/determinants-of-capital-flows-to-developing-countries-a-structural-var-WwbG0xkUAK
Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0144-3585
DOI
10.1108/01443580810895608
Publisher site
See Article on Publisher Site

Abstract

Purpose – The aim of the study is to investigate the relative significance of the determinants of disaggregated capital flows (foreign direct investment and portfolio flows) to five developing countries, across different time horizons. Design/methodology/approach – An empirically tractable structural VAR model of the determinants of capital flows is developed, and variance decomposition and impulse response analyses are used to investigate the temporal dynamic effects of shocks to push and pull factors on foreign direct investment and portfolio flows. Findings – Estimation of the model using quarterly data for the period 1976‐2001 provides evidence supporting the hypothesis that shocks to real variables of economic activity such as foreign output and domestic productivity are the most important forces explaining the variations in capital flows to developing countries. Research limitations/implications – These findings highlight the concomitant need for policy makers in developing countries to design domestic policy that accounts for both external and internal shocks to real variables of economic activity. Originality/value – Previous empirical studies on the determinants of capital flows to developing countries have mostly examined the capital flow variable in aggregate, and have largely overlooked the possibility that the relative significance of estimated coefficients of such determinants may vary across time horizons.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Sep 5, 2008

Keywords: Capital; International investments; Portfolio investment; Developing countries

References