The Volatility of Capital Flows in Emerging Markets: Measures and Determinants

Pagliari, Maria Sole; Hannan, Swarnali Ahmed

doi:10.2139/ssrn.2958174

Cited by 6 publications

(5 citation statements)

References 28 publications

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“…These findings are in line with those of Beck (2001), Alfaro et al (2007), Lee et al (2013) and Neanidis (2019) [21], who also concluded that institutional quality provides a contract effectiveness enforced by property rights and protects agents from the risk of expropriation, which reduces the volatility of capital inflows. In addition, the private other investors [22] mainly depend on global variables, such as global liquidity and sovereign credit ratings (S&P index [23]) which is the same factor that accelerated the volatility of FOI to the euro area after several episodes of sovereign debt crisis (Broto et al, 2011;Lee et al, 2013;Pagliari and Hannan, 2017).…”

Section: Discussion Of Resultsmentioning

confidence: 99%

The impact of institutions' quality and information availability on capital inflows volatility in selected MENA countries

Sayed¹,

Omar

Khaled³

2023

REPS

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PurposeThis paper aims to discuss the main characteristics of the Middle East North Africa (MENA) region's capital inflows volatility. It also examines the effect of institutional quality and information availability on capital inflows volatility in selected MENA countries (Bahrain, Egypt, Israel, Jordan, Kuwait, Libya, Morocco, Oman, Saudi Arabia and Tunisia) in the period 1996–2017.Design/methodology/approachThe study's assessments are based on the International Country Risk Guide (ICRG) and globalization indices. It also employs an updated data set of balance of payments indicators released by the International Monetary Fund. Moreover, the study uses econometric panel modeling of random effect model, with Driscoll-Kraay robust standard error, to analyze the relationship between capital inflows volatility, institutional quality and information availability.FindingsThe paper finds that both institutional quality and information availability are in an inverse relationship with the total capital inflows volatility in the MENA region. However, the findings vary across the different components of total capital inflows. For example, the volatility of foreign direct investment (FDI) declines, like total capital flows, as the two factors improve. However, the volatility of foreign portfolio investment (FPI) is negatively related to institutional quality but does not have any significant relationship with information availability. While the volatility of foreign other investments (FOI) decreases with the availability of information, but does not have any significant relationship with institutional quality.Originality/valueThis paper expands the limited literature regarding the determinants of capital inflows volatility. Furthermore, it is the first study that investigates the effect of institutional quality and information availability on capital inflows volatility in the MENA region.

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Section: Discussion Of Resultsmentioning

confidence: 99%

The impact of institutions' quality and information availability on capital inflows volatility in selected MENA countries

Sayed¹,

Omar

Khaled³

2023

REPS

View full text Add to dashboard Cite

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“…In addition, the dynamics and volatility of capital flows are strongly linked with episodes of financial market stress (Gelos et al 2021). An important pull factor is the country's institutional quality and macroeconomic and macroprudential policy mix (Alfaro, Kalemli-Ozcan, and Volosovych 2007;Okada 2013;Slesman, Baharumshah, and Wohar 2015;Hannan and Kaufman 2017;Pagliari, Hannan, and Kaufman 2017). In particular, political, legal, and economic institutional quality plays a significant role in driving the dynamics of capital flows (Osina 2021).…”

Section: Stylized Facts On Institutional Quality In Asiamentioning

confidence: 99%

Institutional Quality and Macrofinancial Resilience in Asia

Submitter

Beirne

Panthi³

2022

SSRN Journal

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“…Estimating the volatility of capital inflow is not a simple task. Pagliari and Hannan (2017) and Neumann et al (2009) utilize the standard deviation of capital inflows across a large scale of annual data [3]. We follow the same approach to define our dependent variable “ V ”.…”

Section: Dampening International Financial Shocksmentioning

confidence: 99%

Attenuating international financial shocks: the role of capital controls

Zehri

2021

IJOEM

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PurposeBy reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial system and then reduce the volatility of capital inflows. The objective of this study was to conduct an empirical examination of this hypothesis. This topic has received strong support in the theoretical literature; however, empirical work has been quite limited, with few empirical studies that provide direct empirical support to this hypothesis.Design/methodology/approachThis study analyzed quarterly data of 32 emerging economies over the period between 2000 and 2015 and proposes two methods to identify capital control actions. Using panel analysis, Autoregressive Distributed Lag and local projections approaches.FindingsThis study found that tighter capital controls may diminish monetary and exchange rate shocks and reduce capital inflows volatility. Furthermore, capital controls respond counter-cyclically to monetary shocks. Under capital controls, countries with floating exchange rate regimes have more potential to buffer monetary shocks. We also found that capital controls on inflows are more effective for reducing the volatility of capital inflows compared to capital controls on outflows.Originality/valueThis study contributes to the question of the effectiveness of capital controls in attenuating the effects of international shocks and reducing the volatility of capital flows. Previous studies have mostly focused on the role of macroprudential regulation; however, there is a lack of systematic effects of capital controls on monetary and exchange rate policies. To our knowledge, this is the first preliminary study to suggest that capital controls may buffer monetary and exchange rate shocks and reduce the volatility of capital inflows. This study investigates the novel notion that capital controls allow for a notable counter-cyclical response of monetary and exchange rate policies to international financial shocks.

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The Volatility of Capital Flows in Emerging Markets: Measures and Determinants

Cited by 6 publications

References 28 publications

The impact of institutions' quality and information availability on capital inflows volatility in selected MENA countries

The impact of institutions' quality and information availability on capital inflows volatility in selected MENA countries

Institutional Quality and Macrofinancial Resilience in Asia

Attenuating international financial shocks: the role of capital controls

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