Why Should Emerging-Market Countries (Still) Concern Themselves With Capital Inflows?
Agosín Trumper, Manuel
Cita de ítem
Series Documentos de Trabajo, No. 268 Noviembre, 2007
This paper develops a simple analytic framework to analyze the effects
of capital surges and sudden stops in the financial account of the
balance of payments in emerging economies. In this model, capital
inflows are largely exogenous to the recipient economies, they are very
large when scaled to the size of the domestic financial sectors of
recipients, and have large real effects. They also sow the seeds for the
ensuing sudden stops, or capital flow reversals, observed in recent
financial crises in emerging markets. Sudden stops can have
devastating effects on output, growth, and employment. The paper
goes on to test the main hypothesis derived from the model with an
econometric analysis of capital surges and sudden stops using a panelprobit
framework with heterogeneous unobserved country effects.
While capital surges can be triggered by a number of domestic or
foreign signals, the main variables that account for sudden stops are
preceding capital surges, the size of the current account deficit, and
contagion from sudden stops in other emerging markets. The main
policy conclusion is that emerging economies need specific policies to
deal with capital surges, which are largely exogenous to them.
Universidad de Chile, Facultad de Economía y Negocios