© 1995 International Monetary Fund
Library of Congress Cataloging-in-Publication Data
Capital flows in the APEC region / edited by Mohsin S. Khan and Carmen M. Reinhart.
p. cm. — (Occasional Papers, ISSN 1251-6365; 122)
Background papers prepared by IMF staff for meetings of APEC
(Asia Pacific Economic Cooperation Council) region ministers.
ISBN 9781557754660
1. Capital movements—Asia. 2. Capital movements—Pacific Area. I. Khan, Mohsin S. II. Reinhart, Carmen M. III. International Monetary Fund. IV. Asia Pacific Economic Cooperation (Organization) V. Series: Occasional paper (International Monetary Fund); no. 122.
HG3891.C368 1995
332’.042—dc20
95-6419
CIP
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Contents
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Preface
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I Introduction
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II Portfolio Capital Flows to the Developing Country Members of APEC
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Shogo Ishii and Steven Dunaway
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Recent Experience
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Composition and Geographic Distribution of Capital Flows
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Recent Trends and Characteristics of Portfolio Capital Flows
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Bonds
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Equities
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Sources and Destinations of Portfolio Capital Flows
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Investor Base
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Recipients of Flows
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Portfolio Capital Flows Among APEC Countries
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III Macroeconomic Management in APEC Economies: The Response to Capital Inflows
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Mohsin S. Khan and Carmen M. Reinhart
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Capital Inflows
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Characteristics of the Inflows
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Macroeconomic Effects
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External Factors and Sustainability Issues
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Causes of the Inflows
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Sustainability of the Capital Inflows
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Policy Response
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Monetary and Exchange Rate Policy
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Sterilized Versus Nonsterilized Intervention
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Banking Regulation and Supervision
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Fiscal Policy
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Structural Measures
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Policy Mix and Sequencing
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References
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IV Effect of Capital Flows on the Domestic Financial Sectors in APEC Developing Countries
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David Folkerts-Landau, Garry J. Schinasi, Marcel Cassard, Victor K. Ng, Carmen M. Reinhart, and Michael G. Spencer
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Banking Sector as a Conduit for Capital Inflows
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Capital Inflows, Central Bank Intervention, and Domestic Credit Expansion
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Banking Sector, Infrastructure, and Capital Inflows
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Impact of Portfolio Capital Flows on Emerging Equity Markets
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Spillovers, Price Volatility, Market Liquidity, and Market Efficiency
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Role of the Financial Infrastructure
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Conclusions
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Improving the Banking Systems
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Improving the Domestic Equity Markets
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Remaining Risks
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Appendix
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Elements of Commercial Bank Regulations in Selected APEC Developing Countries
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References
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Tables
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2-1. Capital Flows to Developing Countries
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2-2. Capital Flows to APEC Developing Countries
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2-3. Credit Ratings of APEC Developing Country Sovereign Borrowers
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3-1. Asia: Balance of Payments
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3-2. Foreign Direct Investment for Selected Asian Countries
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3-3. Bond and Equity Issues
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3-4. Key Indicators for Selected Latin American and Asian Economies
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3-5. Latin America: Balance of Payments
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4-1. Indicators of Banking Activity in Selected APEC Countries
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4-2. Net Capital Flows to APEC Developing Countries
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4-3. Daily Market Index Return Volatility and Extreme Price Movement Analysis
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4-4. Volatility Spillover Analysis
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4-5. Selected Stock Markets: Recent Developments
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4-6. Market Efficiency Tests
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4-7. Portfolio Flow Versus Trading Volume
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Charts
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2-1. Capital Flows to Developing Countries
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2-2. Composition of Capital Flows to APEC Developing Countries
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2-3. Capital Flows to APEC Developing Countries
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2-4. Net Foreign Direct Investment in APEC Developing Countries
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2-5. Net Portfolio Capital Flows to APEC Developing Countries
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2-6. International Bond and Equity Issues by APEC Developing Countries
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2-7. International Bond Issues by APEC Developing Countries and U.S. Long-Term Interest Rates, 1990-Second Quarter 1994
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2-8. Maturing Bonds of APEC Developing Countries
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2-9. International Equity Issues by APEC Developing Countries, 1990-Second Quarter 1994
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3-1. Balance on the Capital Account
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3-2. Capital Flows in Developing Countries
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3-3. Share Prices for Selected Emerging Markets in Asia
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3-4. Official Reserves for Selected Asian Countries
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3-5. Real Exchange Rates for Selected Asian Countries
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4-1. Stock Market Trends, January 1988-July 1994
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Appendix Tables to Section II
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A1. Capital Flows to APEC Developing Countries by Country
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A2. Net Foreign Direct Investment in APEC Developing Countries
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A3. Net Portfolio Flows to APEC Developing Countries
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A4. International Bond Issues by APEC Developing Countries
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A5. International Bond Issues by APEC Developing Countries by Type of Borrower
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A6. Yield Spreads at Launch for Unenhanced Bond Issues by APEC Developing Countries
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A7. Enhancements of International Bond Issues by APEC Developing Countries
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A8. International Bond Issues by APEC Developing Countries by Currency of Denomination
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A9. International Equity Issues by APEC Developing Countries
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A10. International Equity Issues by APEC Developing Countries by Type
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A11. Emerging Market Equity Funds Designated for APEC Developing Countries
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A12. Net Equity Flows to APEC Developing Countries Through Emerging Market Mutual Funds
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A13. International Bond Issues by Country and Sector, 1990–June 1994
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A14. International Equity Issues by Country and Sector, 1990–June 1994
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A15. Net Purchases of Foreign Bonds by U.S. Investors
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A16. Net Purchases of Foreign Equities by U.S. Investors
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A17. Portfolio Flows from Japan to Southeast Asia and China
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A18. Samurai Bond Issues by APEC Developing Countries
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A19. Net Purchases of Equities in Asian Stock Exchanges by Japanese Investors
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A20. List of Developing Country Stock Exchanges Designated by the Japanese Securities Dealers Association
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A21. Net Assets of Emerging Market Country Funds Listed on the Osaka Securities Exchange
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The following symbols have been used throughout this paper:
… to indicate that data are not available;
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
- between years or months (e.g., 1991–92 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years (e.g., 1991/92) to indicate a crop or fiscal (financial) year.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Preface
This Occasional Paper contains a set of papers dealing with various aspects of capital inflows in the Asia-Pacific Economic Cooperation Council (APEC) region. These papers were prepared by IMF staff in response to requests made by the APEC Ministers of Finance. One of the papers, “Macroeconomic Management in APEC Economies: The Response to Capital Inflows,” was prepared as background for the joint ministerial meeting held in Honolulu, Hawaii (March 18–19, 1994), while the other two were considered at the meeting of APEC Deputy Finance Ministers in Madrid, Spain (October 3, 1994).
The authors of the papers received useful comments from staff in other departments. They are grateful to Anne Jansen, Jared Romey, and Subramanian S. Sriram for research assistance and to Norma Alvarado, Darlene Alvis, Lucia Buono, Ann-Barbara Hyde, and Tammi Shear for secretarial assistance. Elisa Diehl of the External Relations Department edited the manuscript and coordinated the publication process.
The opinions expressed in the papers are those of the authors and do not necessarily reflect the views of the IMF or its Executive Directors.