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Measuring and explaining the volatility of capital flows to emerging countries

By Carmen Broto, Javier Díaz-Cassou and Aitor Erce

Abstract

This paper analyzes the determinants of the volatility of the various types of capital inflows into emerging countries. After calculating a proxy of the volatility of FDI, portfolio and bank inflows, we use a panel data model to study their relationship with a broad set of explanatory variables. Our results highlight the difficulties policy-makers face in stabilizing capital flows. Thus, we show that since 2000 global factors beyond the control of emerging economies have become increasingly significant relative to country-specific drivers. However, we identify some domestic macroeconomic and financial factors that appear to reduce the volatility of certain capital flows without increasing that of others

Topics: HB Economic Theory
Publisher: Elsevier
Year: 2011
DOI identifier: 10.1016/j.jbankfin.2011.01.004
OAI identifier: oai:eprints.lse.ac.uk:36885
Provided by: LSE Research Online
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