What Drives Foreign Capital Flows? – a Dissaggregation Analysis of Gross Capital Inflows to Advanced and Emerging Economies
Year: 2022
Type: article
Abstract: Using an extensive panel data on the gross capital inflows and their drivers identified based on the empirical literature in advanced and emerging markets for the last 25 years, this study explored the key drivers of aggregate and disaggregate capital flows emphasizing on the both the push as well as pull factors. The disaggregated capital flow which comprises of three main categories of foreign investments i.e. direct investments (DI’s), portfolio investments (PI’s) and other investments (OI’s) while, the summation of these three components defines the aggregate investments (AI’s). At the aggregate level, we find a strong association between capital flows and global drivers then domestic factors. Amongst the most consistent drivers, we can see further variations in terms of country groupings. While empirical findings on the disaggregated capital flows suggest that different types of capital flows are driven by the drivers differently, although some drivers are consistent most however suggest varied effects across the types of capital flows. The most important domestic drivers consist of financial development, financial openness and institutional quality. While factors such as global liquidity, commodity prices and global risk form the most consistent global drivers throughout the study.
Authors: Dr. Ramesh Bommadevara, Dr. Sri Ram Padyala, Akshay Sakharkar
Institution: Goa University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4286945488