This article examines the role of domestic and global factors in driving foreign direct investment (FDI) inflows to Asian emerging economies. Conventional panel estimations do not adequately account ...for the interdependence among countries caused by common global shocks and spatial effects. This article, employing a novel technique, augments the panel cointegration estimations with a proxy for unobserved common factors extracted from the augmented mean group regression. Our estimations control for nonstationarity, endogeneity, cross-sectional dependence, and heterogeneity. Based on the data of six Asian emerging economies from 2000Q1 to 2019Q4, we find a significant impact of both push (global) and pull (domestic) factors in attracting FDI. Our policy implication suggests the sequential opening of the capital account with capital controls and macroprudential regulations in place.
JEL Codes: F21, F30, F41
Recently portfolio choice has become an important element of many DSGE open economy models. Yet, a substantial body of evidence is inconsistent with standard frictionless portfolio choice models. In ...this paper we introduce a quadratic cost of changes in portfolio allocation into a two-country DSGE model. We investigate the level of portfolio frictions most consistent with the data and the impact of portfolio frictions on asset prices and net capital flows. We find the portfolio friction accounts for (i) micro evidence of portfolio inertia by households, (ii) macro evidence of the price impact of financial shocks and related disconnect of asset prices from fundamentals, (iii) a broad set of moments related to the time series behavior of saving, investment and net capital flows, and (iv) other phenomena relating to excess return dynamics. Financial and saving shocks each account for close to half of the variance of net capital flows.
Bilateral international investments: The big sur? Broner, Fernando; Didier, Tatiana; Schmukler, Sergio L. ...
Journal of international economics,
November 2023, 2023-11-00, Letnik:
145
Journal Article
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This paper presents novel stylized facts about the rise of the South in global finance using country-to-country data. To do so, the paper assembles comprehensive bilateral data on cross-border bank ...loans and deposits, portfolio investment, foreign direct investment, and international reserves from 2001 to 2018. The main findings are that investments involving the South, and especially within the South, have grown faster than those within the North. By 2018, South-to-South investments accounted for 8% of total international investments, while investments between the South and the North accounted for an additional 26%. The fastest growth occurred in portfolio investment and international reserves, whereas the slowest growth was in banking. These trends are not driven by China, any particular South region, or offshore financial centers. South-to-South investments grew the fastest even after controlling for regional GDP growth. The extensive margin played a significant role in the growth of investments within the South.
•We compiled bilateral data on loans and deposits, portfolio investment, FDI, reserves.•We find that investments involving the South grew faster than those within the North.•Portfolio investment and reserves grew the fastest, loans and deposits the slowest.•These trends are not driven by China, any South region, or offshore financial centers.•By 2018, investments involving the South accounted for 34% of the total.
Capital flows in an aging world Bárány, Zsófia L.; Coeurdacier, Nicolas; Guibaud, Stéphane
Journal of international economics,
January 2023, 2023-01-00, 2023, Letnik:
140
Journal Article
Recenzirano
Odprti dostop
We investigate the importance of worldwide demographic evolutions in shaping capital flows across countries. Our lifecycle model incorporates cross-country differences in fertility and longevity as ...well as differences in countries' ability to borrow inter-temporally and across generations through social security. In this environment, global aging triggers uphill capital flows from emerging to advanced economies, while country-specific demographic evolutions reallocate capital towards countries aging more slowly. Our quantitative multi-country overlapping generations model explains a large fraction of long-term capital flows across advanced and emerging countries.
This paper examines the relationship between capital inflows and import of capital goods to credit-constrained industries in developing countries. Using data of 11 industrial sectors in 57 countries ...for 2000–2020, we find that financially dependent industries import disproportionately more capital goods if they operate in countries that receive more foreign funds. A host of robustness tests, including instrumental variables estimation, confirm our main finding. We also document that: (i) the established nexus breaks down during the global financial crisis, (ii) the observed relationship is mainly due to the direct investment via equity, and (iii) host countries tend to import relatively more capital goods from G7 economies. Overall, our results suggest that one channel through which capital inflows affect economic growth is by alleviating firms' financial constraints, thereby enabling firms to acquire more advanced capital goods.
Using micro-level data on mutual funds from different financial centers investing in equity and bonds, this paper analyzes how investors and managers behave and transmit shocks across countries. The ...paper shows that the volatility of mutual fund investments is quantitatively driven by both the underlying investors and fund managers through (i) injections into/redemptions out of each fund and (ii) managerial changes in country weights and cash. Both investors and managers respond to country returns and crises and adjust their investments substantially, e.g., generating large reallocations during the global financial crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries during bad times and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run pass-through from returns to country weights. Capital flows from mutual funds do not seem to have a stabilizing role and expose countries in their portfolios to foreign shocks.
► This paper studies how investors and managers react to shocks and crises. ► And the impact on capital flows through international investment allocations. ► Investors inject/redeem money into each fund. ► Managers change country weights and cash. ► Both act pro-cyclically to crises and do not stabilize capital flows.
•A flight-to-safety (FTS) index measuring global risk appetite is constructed from daily asset prices.•The FTS index is associated with significant US dollar appreciation.•Both FTS and US monetary ...policy have large spillover effects on emerging markets.•Results are robust to controlling for other measures of global financial risk.
This paper constructs a global financial flight-to-safety (FTS) index that measures risk-off/risk-on sentiment using daily asset prices disciplined with sign and magnitude restrictions. This FTS index is correlated with U.S. Dollar returns and global financial conditions but uncorrelated with high-frequency U.S. monetary policy shocks, providing a novel setup to jointly compare international financial and monetary spillovers under relatively mild identification assumptions. Estimates from a multi-country VAR show that FTS induce wider sovereign spreads, currency depreciation, and slower economic growth in emerging markets. Coincident U.S. monetary policy expansions offset these FTS spillovers by about 30% while coincident policy contractions magnify them, suggesting a prominent role for U.S. policy in shaping financial stability abroad.
•I document a negative correlation between international debt and equity flows.•This negative correlation has become stronger over time due to financial integration.•I use a two-country model with ...capital flows to study the roles of debt and equity assets.•The negative correlation arises when the agents trade the assets to hedge against income risks.•The model predictions are consistent with the empirical observations.
This paper empirically documents a number of stylized facts about international debt and equity flows and theoretically investigates the roles of these two financial assets in international risk sharing. Using a dataset of debt and equity flows since 1970 for a sample of 104 countries, I find that international debt and equity flows have become increasingly volatile in recent decades due to the increased world financial integration. In addition, there is a negative correlation between the debt and equity flows, and this negative correlation has become stronger over time. Using a simple two-country model with international capital flows, I show that a negative correlation between the debt and equity flows arises when two countries trade equity assets and a bond to hedge against income uncertainties. The numerical analysis shows that the model can replicate the dynamics of the volatilities and correlation between the debt and equity flows in the data as financial integration progresses.
The 2011 World development report looks across disciplines and experiences drawn from around the world to offer some ideas and practical recommendations on how to move beyond conflict and fragility ...and secure development. The key messages are important for all countries-low, middle, and high income-as well as for regional and global institutions: first, institutional legitimacy is the key to stability. When state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases. Second, investing in citizen security, justice, and jobs is essential to reducing violence. But there are major structural gaps in our collective capabilities to support these areas. Third, confronting this challenge effectively means that institutions need to change. International agencies and partners from other countries must adapt procedures so they can respond with agility and speed, a longer-term perspective, and greater staying power. Fourth, need to adopt a layered approach. Some problems can be addressed at the country level, but others need to be addressed at a regional level, such as developing markets that integrate insecure areas and pooling resources for building capacity Fifth, in adopting these approaches, need to be aware that the global landscape is changing. Regional institutions and middle income countries are playing a larger role. This means should pay more attention to south-south and south-north exchanges, and to the recent transition experiences of middle income countries.
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