What Drives Different Types of Capital Flows and their Volatilities in Developing Asia?

Rogelio Mercado, Cyn-Young Park

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

Understanding the determinants of capital inflows is essential to designing an effective policy framework to manage volatile capital flows and their disruptive potential. This paper aims to identify factors that explain the size and volatility of various types of capital flows to developing Asia, vis-à-vis other emerging market economies. The estimates for a panel dataset show that per capita income growth, trade openness, and change in stock market capitalization are important determinants of capital inflows to developing Asia. Trade openness increases the volatility of all types of capital inflows; while change in stock market capitalization, global liquidity growth and institutional quality lowers the volatility. A regional factor plays an important role in determining the size and volatility of capital inflows in emerging Europe and emerging Latin America, suggesting that regional economic cooperation and policy coordination may be an important element in designing a policy framework to manage capital inflows.
Original languageEnglish
Pages (from-to)655-680
JournalInternational Economic Journal
Volume25
Issue number4
DOIs
Publication statusPublished - 20 Dec 2011

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