Capital Inflows Research Articles

Analisis Hubungan Antar Luar Negeri Dan Capital Inflow Terhadap Pertumbuhan Ekonomi

This research aims to analyze the relationship between foreign relations and capital inflow on a country's economic growth. These factors play a crucial role in determining a country's economic performance. The study utilizes macroeconomic data from the period 2010 to 2020 to test the proposed hypotheses. The analysis results indicate a significant positive relationship between foreign relations and economic growth, as well as a strong correlation between capital inflow and economic growth. Furthermore, the research reveals that foreign relations and capital inflow have a significant synergistic impact on economic growth. Policy implications of these findings are discussed in the context of a country's economic development and foreign relations.

The effect of capital inflows on the imports of capital goods in developing countries

This paper examines the relationship between capital inflows and import of capital goods to credit-constrained industries in developing countries. Using data of 11 industrial sectors in 57 countries for 2000–2020, we find that financially dependent industries import disproportionately more capital goods if they operate in countries that receive more foreign funds. A host of robustness tests, including instrumental variables estimation, confirm our main finding. We also document that: (i) the established nexus breaks down during the global financial crisis, (ii) the observed relationship is mainly due to the direct investment via equity, and (iii) host countries tend to import relatively more capital goods from G7 economies. Overall, our results suggest that one channel through which capital inflows affect economic growth is by alleviating firms' financial constraints, thereby enabling firms to acquire more advanced capital goods.

ANALYSIS OF TRANSFORMATIONS IN MONETARY POLICY IMPLEMENTATIONS IN TURKEY AFTER 2021

The aim of this study is to analyze the main economic effects of the monetary policies implemented in Turkey after 2021. Monetary policies implemented in 2021 reflect an unorthodox approach, unlike the policies implemented before 2000. As a result of these policies based on keeping interest rates low, the inflation rate rose to double digits and central bank reserves melted rapidly. As of the second half of 2023, orthodox policies have been returned and improvements in macroeconomic balances have begun. Despite the orthodox policies implemented since the second half of 2023, there is no significant decrease in the inflation rate. There is a partial improvement in reserves. Whether orthodox policies produce the desired results in Turkey depends on the continuity of these policies and the inflow of foreign capital.

Impact of dividends and capital intensity of labour on real wages in post-communist economies

This paper aims to verify gains and losses from foreign direct investment as well as outflow of capital in the form of dividends from Central and Eastern Europe. The topic of dividend outflow is currently at the centre of political as well as media interest. At the same time, it is prone to simplistic interpretations and possible political intervention might exert a significant negative social impact. The contemporary economic theory and empirical research are in relative consensus on the positive effects of foreign investment. Most notably, it increases capital endowment of labour. However, the questions that have not yet been resolved are the rate of intensity, phases and channels of foreign capital flows. The effect of foreign investment during the different phases of foreign life-cycle is practically unexplored. The need for this type of research does not arise in Western Europe’s economies as they are in a position of creditor compared to Central and Eastern Europe. Therefore, the article examines whether the outflow of dividends is associated with the deterioration of aggregate demand or an increase of export capacities. Through the panel regression method, these relationships are captured in Western Europe’s economies and compared with the Central and Eastern Europe’s economies. The effect of capital intensity and dividend outflow on real wages in the post-communist countries was examined. The findings break down the myth portrayed in the media concerning the cost of dividend outflow and, on the contrary, they confirm substantial benefits stemming from the capital inflow. Late stages of foreign investment cycle connected with dividend outflow do not bear any adverse effects. The high profitability of foreign-controlled enterprises is in line with the favourable wage development of domestic labour force.

Foreign direct investment, foreign aid and economic growth nexus in Kenya

The increasing role of foreign capital inflows in reducing the disparity between government revenues and costs as well as impellent economic growth has motivated this study to establish the direction of causality between foreign direct investment (FDI), foreign aid, and economic growth in Kenya. By using annual time series data from 1970 to 2020 within bounds testing approach to cointegration and the error correction model ECM-based Granger-causality, the study found a bidirectional causality between foreign aid and economic growth in the short run and a unidirectional causal flow from foreign aid to economic growth in the long run. The results also support evidences of bidirectional causality between FDI and foreign aid in the short run and a unidirectional causal flow from foreign aid to FDI in the long run. However, the study found no causal relationship between FDI and economic growth, irrespective of whether the causality test is conducted in the short run or in the long run. These empirical findings are encouragement to policy makers in Kenya to carefully channel foreign aid in productive sectors to positively influence economic growth and foreign direct investment, as most relevant targets in achieving Vision 2030 and the Sustainable Development Goals (SDGs).

TESTING WEAK-FORM EFFICIENCY FOR THE SAUDI PARALLEL MARKET (NOMU)

Market efficiency is essential for a thriving stock exchange and has a substantial impact on capital investments, particularly in emerging markets. This article examines the weak-form efficiency of Nomu, the Saudi Arabian parallel stock exchange. The study employed various statistical tests on the collected closing values of the Nomu index from May 1, 2019, to May 31, 2023. The return normality and stationarity were investigated using the Jarque-Bera, Augmented Dickey-Fuller (ADF), and Phillips-Perron (PP) tests. The Variance Ratio (VR) test was used to assess autocorrelation, while the Wald-Wolfowitz Runs (WWR) test was utilized to examine random walk behavior. While the Runs test indicated some randomness, all other tests rejected their null hypotheses, indicating that the Nomu market is inefficient according to the weak-form model. This inefficiency suggests that historical trading data may predict future prices, which could discourage foreign capital inflows, thereby limiting Nomu's growth and investment appeal. The significance of these findings for regulators and policymakers in formulating market regulations and policies aimed at enhancing Nomu's efficiency and investor appeal cannot be overstated. This paper, with its robust methodology, is believed to be the first to evaluate the Nomu market's weak-form efficiency since its inception, contributing to a better understanding of market dynamics in emerging stock exchanges.

The Elusive Connectedness between Foreign Direct Investment, Institutional Investment, Loans and Bank Credit in India

The study tried to attempt a dynamic linkage between capital inflows and bank credit in case of India. The autoregressive distributed lag (ARDL) model was applied from 1994 Q1 to 2016 Q3. The result found that FDI, FPI and Foreign Loan affect domestic bank credit positively in the long run. Specifically, with a one per cent increase in FDI, FPI and foreign loans increased bank credit by 0.13, 0.76 and 0.22 per cent, respectively. Hence FPI had the maximum impact, followed by Foreign Loan and FDI. Furthermore, the result also revealed that raising the monetary base of the country also increases bank credit, but the exchange rate remains unaffected.

What drives public debt in SAARC countries? An empirical assessment

PurposeThis study aims to explore the determinants of public debt in selected South Asian Association for Regional Cooperation (SAARC) countries for 19 years, from 2001 to 2019.Design/methodology/approachUsing ordinary fixed and random effect models, the authors examine the role of internal and external factors in determining the composition of public debt. Furthermore, for robustness, they compare the results with two-stage least square (2SLS) regression estimates after considering the problem of endogeneity, overidentification, under-identification and weak instruments.FindingsThe findings show that among the selected macroeconomic variables, inflation, exchange rate and broad money have significant negative effects on the debt-GDP ratio. In contrast, military spending, corruption and interest rates appear to positively influence the same as per 2SLS results. From the policymaking perspective, SAARC countries should focus more on reducing military spending and make a concerted effort to augment investments in productive projects. Further, with strong fiscal consolidation and institutional quality, it is important to mitigate the frequent occurrence of corruption conundrums in emerging economies for the development of a transparent economic system.Originality/valueThe study is distinct from previous studies in two ways. First, to the best of the authors’ knowledge, there are no studies focusing on SAARC countries in the context of public debt. Second, the study expands the existing literature on public debt by taking into account both external and internal debts to decipher the within-country and cross-country determinants of debt accumulation. More specifically, this model considers accountability and transparency in the public sector, cross-border security challenges and benefits of globalization by including explanatory variables such as corruption, military expenditure spending and capital inflows.

Foreign Capital Inflows and Macroeconomic indicators: Are Developing Economies in the Trap of the Dutch Disease Hypothesis?

The Dutch disease phenomenon has been related to foreign inflows into emerging economies in particular, including foreign aid, migrant’s remittances, and foreign direct investment. A surge in these inflows is expected to yield a rise in the real exchange rate. Recipient countries have seen a decline in industry as a result of the rise in the non-marketable sector and the slump in the marketable sector. This study empirically investigates the mechanisms of real exchange rate adjustments to migrant remittances, ODA, and FDI toward emerging economies. For the analysis covering the years 2001–2020, dynamic panel data approaches, difference GMM and system GMM, are used to investigate the incidence of Dutch Disease in 84 emerging economies. Numerous econometric studies have shown that Dutch Disease does exist in emerging economies. The Dutch Disease theory is supported by an expanded study that has included the empirical analysis of both industrial (marketable) and service (nonmarketable) sectors.

SIGNIFICANCE AND TAX TREATMENT OF REVERSE FACTORING AS AN INSTRUMENT FOR FINANCING SMALL AND MEDIUM-SIZED ENTERPRISES IN THE REPUBLIC OF SERBIA

In modern market circumstances, when competition is becoming more and more ruthless, especially in the period of the continuing immanent duration of the effects of the world economic crisis, which has a vertical depth effect (both those who have significant funds and those who do not have free funds, i.e. they are not liquid, feel it) when fresh capital is getting harder and harder, only those companies can survive that have a constant and regular inflow of fresh capital. In an economic situation in which the dominant role is played by large capital (multinational corporations or regional corporations), where acquisition is increasingly sought, the pressure on small companies becomes more pronounced and stronger. For companies that are organized as small or medium, the inflow of fresh capital is a luxury for the reason that the right to claim is exercised over a longer period of time (30-90 days) with the risk of being unable to collect the claim. It should be emphasized that: a) lack of fresh working capital; b) the frequent absence of own funds (reserve funds) and c) the impossibility of obtaining favorable loans in the current circumstances, inevitably implies that small and medium-sized companies are finding it increasingly difficult to survive. In addition to the fact that globalization has negative effects on the micro-economy, it should be emphasized that the development of the market economy continuously and permanently affects the creation of new and the evolution of existing financial instruments for financing production. Factoring is one of the modern financial instruments that is gaining more and more importance both at the macro and micro level (primarily referring to the countries that belonged to the Eastern Bloc market), and which belongs to the group of parabanking operations. Factoring as a parabanking business in export-oriented economies appears as one of the indispensable financial instruments for financing small and medium-sized companies. One of the specific forms of factoring that has evolved in modern business practice caused by the COVID pandemic is reverse factoring. Reverse factoring as a special type of factoring is contracted between the factor and the debtor from the contract for the sale of goods or the provision of services in the country and abroad, on the basis of which the factor, by taking over invoices from the debtor, assumes his obligation to pay towards the creditors, and has the right to collect from the debtor within from the agreement for the sale of goods or the provision of services in the country and abroad. The legal validity of the reverse factoring deal depends on securing the creditor’s consent. The debtor is obliged to secure the creditor’s consent, otherwise the reverse factoring contract cannot be concluded. The paper will also pay special attention to the tax treatment of income generated on the basis of factoring business in accordance with the positive legal regulations of the Republic of Serbia.

Regulation of Innovative Processes at the Enterprise in a Competitive Environment

Purpose: The objective of the study is to determine the importance of innovation factor in enhancing the competitiveness of enterprises and the necessity of transition of domestic enterprises to an innovative way of development, as well as the regulation of innovation processes in the enterprise in a competitive environment. Design / Methodology / Approach: To achieve the aim of the study, the following scientific methods were used: analysis, synthesis and comparison. Findings: The essence of the regulation of innovation processes at the enterprise in a competitive environment was revealed. It was researched that the revival of investment and business activity in the context of regions had a positive impact on the innovative sphere. All these factors have appreciably improved the innovative environment and provided effective stimulation of the innovative development. Note that foreign and domestic experience has shown that it is the state that has the exclusive role of regulation and stimulation of innovative activity in the enterprise. As it has a powerful influence on innovative process by means of economic methods of direct and indirect action for the purpose of support of competitiveness of innovative production of the enterprises. Originality / Value: The research of motivation of creation of enterprises with foreign investment focused on attraction of advanced technics and technology to the country with such short-term effect as receipt of currency proceeds was further developed. The study showed that enterprises with foreign investment cannot solve the problem of currency deficit in the state, but the creation of conditions for attracting advanced technics and technology to the country is the basis for the implementation of a number of urgent tasks of economic and social development of the country. For this purpose, it is necessary to provide additional benefits to priority basic industries, determining the development of scientific and technological progress in Ukraine and the creation of favorable conditions for the inflow of innovative capital of foreign investors, which will have a positive impact on the development of the Ukrainian economy. Practical Meaning: It is proved that innovation management at Ukrainian enterprises requires formalisation of innovation and investment activity on the basis of production factors and national wealth. Therefore, it is necessary to modernise the methods of assessment of innovation projects, taking into account the latest experience of innovation activity, with the development of basic analytical procedures and determination of the scope of their rational use. Further Research: Development of a mechanism for regulating innovation processes at the enterprise in a competitive environment.

Analyzing the Financial Sector Nexus Economic Growth of Pakistan: New Insights from ARDL Approach

In the context of Pakistan, this study looks at how local financial sector expansion and foreign capital inflows affect economic growth. The Error Correction Model is used for short run connections and the ARDL bounds testing technique to cointegration is used for long run interactions, using yearly data series from the Economic Survey of Pakistan and the WDI for the years 1998–2022. Empirical research indicates that foreign capital inflows boost economic expansion. Economic growth is facilitated by both government investment and the expansion of the financial sector. Technology, the human capital pool, and remittances all contribute positively to economic growth. According to the latest report, financial reforms should be implemented by the Pakistani government to increase the effectiveness of the country's financial industry and, eventually, accelerate economic growth.

The Impact of Fluctuations in the Pounds Value on Commercial Banks Activities Based on Mini-budget and Banks Interest Rate Hikes

Since August 2022, the British pound exchange rate has continued to decline due to multiple factors such as the global epidemic and the Russia-Ukraine war. Against the background of the cost of living crisis with high inflation, especially the sharp rise in energy costs, the British government issued a new tax cut, namely the mini-budget, but the implementation effect is very poor; Subsequently, the Bank of England adopted successive interest rate hikes in an attempt to stabilize the value of the pound and temper the general situation of inflation. This paper critically evaluates the impact of the fluctuation of the value of sterling on the activities of commercial banks in the financial market and analyzes the reasons, advantages, and disadvantages. Commercial banks can benefit from sterling volatility in several ways, such as generating higher trading revenues, enhancing asset liquidity, attracting more capital inflows and trading opportunities, and increasing equity market capitalization. On the other hand, a similar sterling appreciation could have multiple negative effects on commercial banking operations, including risk management, net profits, policy interest rates, and international competition. For the development prospects of commercial banks, it is recommended that in the context of the overall global economic downturn, timely adjust their operations and strategies to adapt to these changes, to withstand the business risks related to exchange rate fluctuations, such as changes in interest rates, interest spreads, and capital costs.

The global cross-border mergers and acquisitions network between 1990 and 2021

Abstract The literature is characterized by a lack of research analyzing cross-border mergers and acquisitions (CBM&A) as a network. This article aims to evaluate the topology properties (the geographical and sectoral structure) of the global CBM&A network in 1990–2021. A quantitative study is conducted by using the social network analysis (SNA) method. The countries’ structural power in this global system is measured by the centrality indicators. From a geographical perspective, the study shows that in 1990–2021, the United States, the United Kingdom, Germany, Canada, and France occupied the most central place in the network. From the beginning of the 21st century, there has also been a marked increase in the importance of Asian countries, with China and India receiving a large inflow of foreign capital. In turn, entities from Hong Kong, Singapore, Japan, and China invested heavily abroad through M&A. The Asian countries’ economies also played the role of important intermediaries in the global CBM&A network. From a sectoral perspective, it can be stated that in 1990–2021, mainly entities operated in the financial, industrial, basic materials, technology, and consumer cyclical sectors made transactions in the global CBM&A network. They were also the main investment targets within this network.

Domestic capital vs. foreign capital new enterprise creation: the case of FDI in India

Abstract The attempt of this paper is to find an empirical relationship between Foreign Direct Investment and New Firms (Paid up Capital) and Gross Capital Formation (proxy for business growth) and Credit to Commercial Sector and Gross Capital Formation using the test of stationarity (ADF, PP, and KPSS methods), Johansen Cointegration and Granger’s Causality. The results show that FDI crowds out creation of new firms and capital formation and it is the Credit flow to the commercial sector that causes Gross Capital Formation at current price. It shows domestic flow of credit is more influential in capital formation rather than foreign capital inflow.

Capital inflows to emerging countries and their sensitivity to the global financial cycle

AbstractWe studied how the effect of global and domestic factors on capital flows towards emerging market economies has changed in the last 25 years. We find that both the global financial crisis and the so‐called “taper tantrum” (TT) event, defined as the point in time when investors perceived the end of the US Federal Reserve's unconventional monetary policy, triggered changes in the sensitivity of capital inflows to their main drivers. In particular, we provide evidence that international investors devoted growing attention to global factors. Moreover, we show that the TT marked the beginning of a new phase, characterized by increased sensitivity to both global conditions and government borrowing by recipient countries.

Capital Account Liberalization, Structural Change, and Female Employment

Abstract This paper studies the effects of capital account liberalization on female employment and its implications for structural change in developing countries. Using a large industry-level panel of 88 low and low-middle-income countries, we provide evidence that episodes of financial liberalization lead to large declines in female employment in tradable sectors. These declines are driven primarily by structural reallocation effects between sectors, although we also find modest changes in the gender composition of employment within sectors, depending on the sample definition. Based on this evidence, we build a stylized model of a small open economy with tradable and nontradable sectors featuring occupational segregation across genders. We use this framework to study the impact of capital inflows and the female wage penalty on female employment in tradables and the real exchange rate. Our model also implies that when the female burden of non-market home production is sufficiently large, capital inflows will disproportionately hurt female employment relative to male employment.

Robust reinsurance contract and investment with delay under mean-variance framework

We consider a (non) zero-sum differential game between two insurers and determine a robust reinsurance contract from joint interests of the insurers and the reinsurer under the framework of Stackelberg differential game, that is, a hybrid stochastic differential game framework is introduced in this article. We assume that each party can invest in a financial market consisting of a risk-free asset and a risky asset whose price evolution follows a stochastic volatility model, and the reinsurer charges the premium according to both the expected value premium principle and the variance premium principle. Since the performance-related capital inflow or outflow feature is introduced, the insurers and reinsurer all aim to maximize their own time-inconsistent mean-variance criterion with delay. Using the dynamic programming approach, we derive the equilibrium investment strategy, the robust equilibrium reinsurance contract, and the corresponding equilibrium value functions under two premium principles with certain conditions, respectively. Some interesting properties of the equilibrium investment strategy are proved explicitly, and several numerical examples and sensitivity analysis are presented to demonstrate the effects of model parameters on the equilibrium reinsurance contract.

Pollution, knowledge and coping strategy and life expectancy in oil producing communities

PurposeThis study aims to examine the relationship between pollution and life expectancy in oil producing communities, where there is a dearth of empirical evidence on how knowledge and coping strategy, agriculture and foreign capital inflows mediate the relationship between pollution and life expectancy.Design/methodology/approachThe study employed a cross sectional survey design to analyze the roles of knowledge and coping strategy, agriculture and foreign capital inflows in the relationship between pollution and life expectancy in Benekuku and Okpai oil producing communities in the Niger Delta. The study employed the modern structural equation modeling (SEM) estimator.FindingsEstimates show the mediating effect of agriculture on air pollution-longevity (coeff. = 0.398; t-value = 4.425; p < 0.05) and (coeff. = −0.120; t-value = −3.862; p < 0.05) mediating effect of foreign capital. The result revealed that agriculture and foreign capital inflows are significant mediators in pollution-life expectancy relations, affirming the Niger Delta as a pollution haven. However, knowledge and coping strategy with estimate of (coeff. = 0.233; t-value = 6.150; p < 0.05) spurs life expectancy.Practical implicationsThe study suggests knowledge of hazard identification and reporting and awareness of coping strategy as the panacea to poor life expectancy rate in these local oil producing communities.Originality/valueThe study departs from existing works by estimating the mediating roles of agriculture and foreign capital inflow in air pollution-Life expectancy by controlling for knowledge and coping strategy using the structural equation model with ethical approval from Health Ethics Research Committee.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2022-0734

Independensi Kebijakan Moneter dalam Jangka Pendek: Kasus Indonesia

Using Capital Flow Model and Central Bank Reaction Function for the case of Indonesia before the current crisis, this paper found that during Indonesia implemented fixed exchange rate regime the monetary policy which was done by Bank of Indonesia has lost its independence. The regression results using Two Stage Least Square method show that the monetary policy during the period before the current crisis in Indonesia was very influenced by the behavior of private capital flows. To neutralize the liquidity effects of private capital inflows as a response to deregulation packages in financial and banking sector in the late of 1980s, Bank of Indonesia has actively implemented the sterilization policies. The regression results of the Central Bank Reaction Function indicate that Bank of Indonesia could not completely sterilize the liquidity effects of private capital inflows. This situation made the monetary policy undertaken by Bank of Indonesia lost its power to stabilize inflation in the economy. The phenomenon of high inflation which followed high economic growth (overheating economy) during the period before the current crisis has significantly reduced the index of competitiveness of Indonesian goods and services in the world market. This is one of the main factors that caused slower Indonesian export growth just before the crisis began in the mid of 1997. This situation made the level of supply of foreign exchange in domestic market dropped significantly, while on the other side the demand level increased as many big corporate businesses and government institutions needed foreign exchange to repay their foreign debt. Rupiah become unstable and public expectation for further devaluation widened. This was the beginning of the current crisis that until now put Indonesia into the deep trouble. Therefore, the most important contribution of this paper is its investigation to the linkage between deregulation and the current crisis. This paper recommends that one of the main factors that generate the Indonesian current crisis has showed up far before the crisis began. It was started when the monetary policy lost its power to stabilize inflation that was caused by behavior of private capital inflows as a response to the wrong sequence of deregulation policies in Indonesia.