Cover IMF Working Papers
Real Effects of Capital Inflows in Emerging Markets
Author: Ms. Deniz O Iganhttps://orcid.org/0000-0002-9501-1807, Ali M. Kutan, and Ali Mirzaei
Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 235
Language:
English
Publication Date:
06 Dec 2016
DOI:
https://doi.org/10.5089/9781475558555.001
ISBN:
9781475558555
ISSN:
1018-5941
Pages:
50
Keywords:
WP; capital flow; bank lending; commercial bank; portfolio investment; Capital flows; financial dependence; industry growth; emerging economies; equity inflow; debt inflow; equity capital; increase capital allocation efficiency; Capital inflows; Foreign direct investment; Credit; Commercial banks; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We examine the association between capital inflows and industry growth in a sample of 22 emerging market economies from 1998 to 2010. We expect more external finance dependent industries in countries that host more capital inflows to grow disproportionately faster. This is indeed the case in the pre-crisis period of 1998–2007, and is driven by debt, rather than equity, inflows. We also observe a reduction in output volatility but this association is more pronounced for equity, rather than debt, inflows. These relationships, however, break down during the crisis, hinting at the importance of an undisrupted global financial system for emerging markets to harness the growth benefits of capital inflows. In line with this observation, we also document that the inflows-growth nexus is stronger in countries with well-functioning banks.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund