Are there different linkages of foreign capital inflows and the current account between industrial countries and emerging markets?

Yan, Ho-Don; Yang, Cheng-Lang

doi:10.1007/s00181-011-0478-8

Cited by 11 publications

(6 citation statements)

References 48 publications

(42 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Yan and Yang (2012) proved on the comparative study of the industrial countries and the emerging markets in the period of 1987À2006 that foreign capital inflow, as the key contributor, resulted in much more serious current account deficit in the emerging countries as compared with the industrialized economies and led to inevitable currency crises. Similarly, Wei (2001) recognized a destructive effect of the capital outflows from the emerging economies, especially if FDIs are combined with a substantial level of international bank loans.…”

Section: Fdis and The Emerging Markets Currency Crisesmentioning

confidence: 99%

International Business Risk Management and the Emerging Market Crises as Challenges for the UN Global Compact

Starnawska¹

2015

Beyond the UN Global Compact: Institutions and Regulations

View full text Add to dashboard Cite

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. ABSTRACTPurpose À The UN Global Compact promotes values of precautionary approach to environmental changes and business sustainability, which are eagerly embraced by MNCs; however the recognized emerging country risks pose a challenge for continuous commitment to those principles in the subsidiaries. Especially political and currency risks are considered significant in the subsidiaries located in the emerging markets. Therefore, those risks are often shifted to the local partners as the pursued core principle of the risk management strategies. The objective of MNCs is in fact to limit MNCs responsibility for the liabilities and losses in the emerging markets in case of market downturns, and in effect the advocated risk management practices exacerbate the severity of the emerging market crises.Methodology/approach À The chapter explores those corporate practices on the examples of numerous major international market players in case of several historical, but recent examples of the emerging market currency crises.Findings À The concerns addressed in the chapter include: the preference for local financing exposing at risk local banking sectors in the emerging markets, excessive liquidity and minimal capital commitments and investments leading to weaker currency fluctuations and resulting in private capital speculations and capital flight (to safety or to quality). The intensified global competition for international investments in form of FDIs resulted in the erosion of the capital requirements, reduced social and business infrastructure commitments requested, limited currency controls, and other components of the regulatory framework easing in the emerging markets. Other identified in the research key components of the risk management strategies applied by MNCs, destabilizing the emerging markets in financial (both fiscal and currency) crises include: intercompany payments and financing such as: transfer pricing, local sourcing and reimbursements for both tangible and intangible assets transfer.Implications À Demonstrated approach of MNCs appears ethically questionable and reflects the disparity of the bargaining powers. It also undermines the intentions of the Ten Principles of the UN G...

show abstract

Section: Fdis and The Emerging Markets Currency Crisesmentioning

confidence: 99%

International Business Risk Management and the Emerging Market Crises as Challenges for the UN Global Compact

Starnawska¹

2015

Beyond the UN Global Compact: Institutions and Regulations

View full text Add to dashboard Cite

show abstract

“…Subramanian (2007) argues that capital flow may lead to appreciation of currency and worsening of the CA balance, thus affecting the competitiveness of an economy. Yan and Yang (2012), Yan and Yang (2012) have shown that the causality runs from the capital account to current account in case of developing countries and therefore it is the capital flow that causes the CA imbalance in these countries. Their study is more robust and has included various control variables in order to get rid of causal fallacy.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The negative association between the two accounts is well justified theoretically (see the Equation [1] in section 3). Yan and Yang (2012) argued that a large capital inflow will result in capital account surplus, which can lead to both higher investment and extravagant consumption, and consequently produce CA deficit. Carranza and Wong (1999) argued that capital inflow worsens the CAB, both under flexible and fixed exchange rate, though through different routes.…”

Section: Unit Root Testmentioning

confidence: 99%

Current and Capital Account Dynamics in India: An Empirical Analysis of the Post-Reform Period

Khan

2021

Foreign Trade Review

View full text Add to dashboard Cite

This article analyses the dynamics between current account (CA) and capital account in post-liberalisation India. Contemporaneous occurrence of CA deficit along with capital account surplus suggests the possible causal relationship between the two accounts. The theoretical debate around capital account liberalisation (KAL) is developed with the intention to lend support to empirical results for policy formulation. The analysis of arguments for and against KAL liberates us in interpreting the empirical results. Within the framework of KAL, this article proceeds to estimate the relationship between current and capital account. A set of econometric tests are performed on an Indian quarterly data over the period from 1996 to 2018. Econometric analysis reveals that capital account affects CA negatively. Short-run capital and debt flow also affect CA negatively, while foreign direct investment (FDI) affects it positively. We find debt flow to be an important factor, contributing to CA imbalance. Such dynamics is critical for any decision about KAL. From the analysis, it is observed that India needs to encourage FDI, while maintaining strict control over short-term capital, which is highly disruptive, and proceed cautiously towards full KAL. JEL Codes: C32, F21, F32

show abstract

“…Majority of the studies in this context concentrate on the differing relationship between the two accounts in case of developing versus developed countries (Fry, Claessens, Burridge, & Blanchet, 1995;Yan, 2005;Yan & Yang, 2008, 2012. In general, the studies conclude that in the case of developed nations, the causality runs from the imbalances in the CA to the KA while in the case of the developing nations, this causality is reversed.…”

Section: Literature Reviewmentioning

confidence: 99%

Estimating the Relationship Between the Current Account, the Capital Account and Investment for India

Goyal

Sharma

2019

Foreign Trade Review

View full text Add to dashboard Cite

Causality from the capital account (KA) to the current account (CA) of the balance of payments indicates disruption from capital flows while the reverse can indicate smooth financing of the CA that allows investment to exceed domestic savings. A three-variable vector autoregression tests for Granger causality between the Indian CA, KA, KA components, and gross fixed capital formation (GFCF) over 2000–01Q1 to 2015–16Q3. Since a CA deficit indicates an excess of investment over savings it is useful to estimate which type of capital flows affect investment. No causality is found to exist in any direction between the KA and the CA. There is only indirect causality through some components. Of the capital flow components, only FDI affects GFCF. The latter consistently affects the CA. The CA affects debt portfolio flows and non-resident deposits, suggesting these were used to finance the CA, but they were not causal for GFCF. Volatile flows, therefore, did not deteriorate the CA, but they also did not contribute to GFCF. India’s gradual KA convertibility may have mitigated shocks from the KA. Long-term sustainability, however, requires FDI to increase as compared to other types of flows. JEL Codes: F21, F32

show abstract

Are there different linkages of foreign capital inflows and the current account between industrial countries and emerging markets?

Cited by 11 publications

References 48 publications

International Business Risk Management and the Emerging Market Crises as Challenges for the UN Global Compact

International Business Risk Management and the Emerging Market Crises as Challenges for the UN Global Compact

Current and Capital Account Dynamics in India: An Empirical Analysis of the Post-Reform Period

Estimating the Relationship Between the Current Account, the Capital Account and Investment for India

Contact Info

Product

Resources

About