International Capital Inflows Research Articles

International Capital Inflow and Human Capital Development in A Developing African Economy: A Study Of Nigerian Economy 1987- 2018

Extant literatures show that savings gaps in developing countries constitute critical constraints to investments in human capital and this has propelled the scramble by developing countries for international capital to fill the gaps. The paper principally examines the effect of international capital inflows (ICI) on human capital development (HCD) in a developing African economy with Nigeria as case study. The specific objectives are to investigate, determine, assess, examine and ascertain the effects of foreign portfolio investment (FPI), foreign direct investment (FDI), official development assistance (ODA), foreign remittance (RMT) and external debt stock (EXDSK) respectively on HCD. Ex-Post Facto research design on data from the Central Bank of Nigeria Statistical Bulletin and Annual Reports and the World Bank Development Indicators were adopted using Descriptive Statistics, Augmented Dicker Fuller tests for unit roots and diagnostics. The results of the Autoregressive Distributive Lag indicated that FPI had positive and significant long run and short run effect on HCD while FDI, ODA, RMT and EXDSK, only have positive and significant short run effects on HCD. The study concluded that ICI has only short run significant effects on HCD with the exception of FPI. Some of the recommendations are that: government should strengthen and deepen the capital market system in Nigeria to sustain existing FPI and attract new ones; government should avoid using ODA for long term project financing in Nigeria and that EXDSK should be contracted solely for short term investments with economic reasons as against white elephant projects without economic justifications.

The impacts of capital inflows on bank lending in the ASEAN-6 countries

PurposeThe authors investigate the impacts of international capital inflows on bank lending in the Association of Southeast Asian Nations-6 (ASEAN-6) countries on the dynamics of both bank loan volumes and credit risk-taking. The authors further explore the heterogenous impacts of different components of the foreign capital. As a robustness check, the authors also examine the role of crisis periods and agency problem on the relationship between international capital inflows and bank lending.Design/methodology/approachThe authors explore the impacts of international capital inflows on bank lending in the ASEAN-6 countries, including Malaysia, Indonesia, Thailand, Philippines, Singapore and Vietnam. The authors employ quarterly data from 2005Q1 to 2021Q2 from 45 commercial banks in the ASEAN-6 countries. The article uses bank-fixed and time-fixed effects in the panel dataset to account for any unobserved heterogeneity.FindingsThe authors find that capital inflows to the ASEAN-6 countries are associated with higher bank loan growth and lower loan loss provisions to net interest income ratios. Moreover, the positive relationships between capital inflows to the bank loan growth and credit risk-taking are mainly driven by the dynamics in foreign direct investments (FDIs) and other inflow (OI) components. Contrary to the global financial crisis (GFC), the authors note that the mediating role of capital inflows on bank lending is of particular importance in the COVID-19 pandemic.Research limitations/implicationsThis study has some limitations that provide vendors for future research. First, while the authors focus on the impact of capital inflows on bank-level lending activities, future research can also explore the role of foreign capital on bank efficiency and financial stability. Second, although foreign capital fluctuates the most during crisis periods, the movement of capital inflows is also sensitive to other periods of heightened global uncertainty. Thus, rather than focus on the behavior of foreign capital during crisis periods, future research can examine and explore the impacts of capital inflows in different periods of “stop” and “surge” for sudden contraction and boom in capital inflows to the ASEAN-6 countries.Originality/valueFirst, the authors provide a comprehensive analysis of international capital inflows' impact on bank lending in the ASEAN region on both bank loan volumes and credit risk-taking. Second, the authors provide evidence of the impact of different forms of foreign capital on the bank lending. Third, the authors investigate the heterogeneous impact of foreign capital on crisis periods and bank sizes, which the authors emphasize the unusual characteristics of the COVID-19 crisis compared with the GFC.

Do hot money movements drive Turkey s housing prices

Purpose- The aim of this study is to investigate the existence and extent of the impact of "hot money" inflows on Turkey's real estate market, which causes the expansion of the monetary base in the markets. The use of data specific to the Turkish market, which has an emerging market economy and where housing production and sales are significant as an important macroeconomic indicator in this market, where the right to acquire housing has been stretched to foreigners in recent years and where excessive short-term capital flows are preferred, reveals the importance of the study. For this purpose, the "Housing Price Index" indicators created by the CBRT to monitor price changes in the housing market were used to measure the situation of housing markets in Turkey in recent years and to measure the possible effects of short-term international capital inflows on real estate prices. Methodology- As a method in the study, firstly, the changes in the monthly data between January 2010 and August 2022 belonging to both hot money and the Housing Price Index compared to the previous period were calculated, and then these data were seasonally adjusted. Then, the Dynamic Ordinary Least Squares (DOLS) method, which has the equation property of Cointegration Regression, was used to learn the existence and extent of the effect of hot money on real estate prices in the long term. Findings- In the analysis, it was found that hot money had a significant effect on housing prices at the level of 5% (p=0.012). The results of the analysis provide evidence that hot money is an important factor in determining housing prices in Turkey. Conclusion- The study found that due to the size of hot money and the fact that it is a short-term investment, it pulls real estate prices upwards and causes volatility. In addition, the results revealed that excessive liquidity caused by short-term international capital inflows drives the change in real estate prices by increasing it and that a long-term relationship between these two variables is evident. Keywords: Hot money, housing price, dynamic ordinary least squares JEL Codes: C32, C58, E44, G10,

Episodes of extreme international capital inflows in emerging and developing economies: The role of global economic policy uncertainty.

Based on annual data for 31 emerging and developing economies in the period 2000–2020, this paper explores the impact of global economic policy uncertainty on episodes of extreme international capital inflows. Following previous researches, we identify episodes of surges and stops. The results show that the global economic policy uncertainty can significantly increase the probability of surges and decrease the probability of stops in emerging and developing economies. The heterogeneity tests show that these effects vary with economic growth, financial development, the degree of economic globalization and global liquidity. Above effects are significant in the groups with higher economic growth, higher financial development, higher economic globalization and higher global liquidity. Further analyses show that as global economic policy uncertainty rises, its impact on surges and stops gradually declines. In addition, global economic policy uncertainty has a significant negative effect on the surge in advanced economies, which could confirm the above conclusion to a certain extent.

Determinants of Foreign Capital Inflows in Emerging Markets: The Role of Institutional Quality

Purpose: The purpose of the study was to examine the key determinants of foreign direct investment (FDI) and foreign portfolio investment (FPI) in emerging market economies, with greater emphasis placed on the impact of institutional quality.
 Design/Methodology/Approach: The study applied a panel data system generalised method of moments (GMM) model using annual data spanning the period 2007 to 2017, in respect of 12 emerging market economies. To measure institutional quality, the study adopted the Worldwide Governance Indicators, and constructed a composite index for institutional quality using the Principal Components Analysis (PCA) method.
 Findings: The results revealed that FDI in the selected emerging markets was attracted by institutional quality and economic growth. Capital account openness, institutional quality and economic growth were positive determinants of FPI. However, stock market development stood out as the key determinant factor for foreign capital inflows.
 Implications/Originality/Value: The implications of these findings are that, in their pursuit of foreign capital inflows, these emerging markets should continue to liberalise their economies and develop their financial markets. Importantly, such developments must be coupled with the strengthening of the formal governance institutions. Robust institutions would not only curb institutional weaknesses that deter international capital inflows, but would also insulate emerging markets from unfavourable effects of volatile capital flows.

Analysis of International Capital Inflows and Institutional Quality in Emerging Markets

This study investigates the cointegrating and causality relationships between foreign direct investment (FDI), foreign portfolio investment (FPI) and institutional quality in a sample of 12 emerging market economies for the period from 2007 to 2017. A composite index for institutional quality composed of the Worldwide Governance Indicators was constructed using the Principal Components Analysis (PCA) method. The panel autoregressive distributed lag (ARDL) model and the error correction model (ECM) were applied to assess the cointegrating and causal relationships between the key variables. In addition to finding significant cointegrating relationships between institutional quality and the foreign capital inflows (FDI and FPI), the results confirmed unidirectional causality from FDI and FPI to institutional quality in the long run. The results further suggested that the long-run relationship between the two foreign capital inflows was more of a trade-off nature, dependent upon the dynamics of the institutional environment in the host economy. The recommendations suggested include that emerging markets should continue to open their economies in pursuit of capital inflows, which will reciprocally strengthen their domestic institutional environment. Strengthening institutions could curtail the persistence of institutional weaknesses and insulate emerging economies from the adverse effects of volatile capital flows and, over the long run, enhance capital inflows.

The foreign investors’ behaviours during the COVID-19 pandemic in emerging market

ABSTRACT International capital inflows contribute a critical part to macroeconomic stability and financial market growth for an emerging economy. As the COVID-19 pandemic has triggered unprecedented chaos in the financial markets recently, this study attempts to explore the current foreign investors’ behaviours and their impacts on the stock market performance in an emerging market. This study found long-term relationships between foreign investors’ trading behaviours and stock market returns. However, the COVID-19 pandemic is distinctive from previous financial crises regarding its impacts on foreign investors’ trading behaviours. Responding to shocks of the COVID-19 pandemic, foreign investors have changed their trading behaviours dramatically and somehow lost their role as a trend leader to domestic retail investors in the market.

The Macroeconomic Determinants of Economic Growth in Uganda (1990–2019)

The study was based on Macroeconomic Determinants of Economic Growth in Uganda using cointegration approach. The researcher used statistical software of Eviews 11 student version for the analysis of the macroeconomic variables affecting Uganda’s economic growth. The main objective of this study was to examine the major macroeconomic determinants of economic growth in Uganda between the periods 1990 and 2019 applying the Johansen method of cointegration. All the variables are integrated at first order except real effective exchange rate as a result the Johansen's cointegration approach was used. The study found out that foreign direct investment (% of GDP), inflation (consumer prices) and real interest rate had a positive effect on growth in real gross domestic product per capita while real effective exchange rate has a negative effect on per capita growth in gross domestic product. In the long run, real effective exchange rate and real interest rate are the significant determinants of growth in real gross domestic product per capita in Uganda. In the short run, inflation (consumer prices) and real interest rate turned to be statistically significant determinants of growth in real gross domestic product per capita. Based on the findings, the following policy recommendations are made: The Bank of Uganda should make use of monetary policy to stimulate the economy through increased aggregate demand due to the positive relationship between inflation and gross domestic product per capita growth. Since there is a positive relationship between FDI and gross domestic product per capita growth, it is therefore recommendable that the government of Uganda continues to attract more international capital inflow through trade liberalization if it is to achieve its growth target of 8 percent growth rate per annum. However the most important policy implication from the findings of negative relationship between economic growth and exchange rate indicates that there is a need for exchange rate policy framework that compliments the existing inflation targeting regime in Uganda. Instead of completely liberalizing the exchange rate in the framework of inflation targeting strategy adopted, policymakers in Uganda have to prevent the upside movements in the exchange rate by taking into consideration its negative effect on economic growth.

INTERNATIONAL CAPITAL FLOWS AND THE CRYPTOCURRENCY EFFECT

The paper investigates the impact of Bitcoin volatility on international capital inflows through the methodology of an AR(1)-CGARCH model across a global panel of 132 countries, as well as across different regions, i.e. Asia, European Union (EU), America (including the US, Canada and Latin American countries), and Africa. The findings document that there is a strong impact of Bitcoin volatility on global international capital inflows, as well as in the cases of the American and Asian cases. However, the results document a statistically insignificant effect for the cases of the EU and African countries.

How international capital inflows and domestic financial institutional development affect domestic credit: Evidence from developing countries

This study examines the effects of international capital flows segmented by borrower type (i.e., banks versus other types of financial institutions) and the development of domestic financial instit...

Capital inflows, sustained investment surges and the role of external economies of scale in a developing economy

AbstractStandard open economy macro models with unemployment predict a contractionary short‐run effect of international capital inflows. Empirical evidence, moreover, often associates such inflows with short‐term booms and developing country policy makers frequently go out of their way to welcome foreign capital. Employing a portfolio balance framework, this paper distinguishes between international financial (i.e., bond) and “real” (i.e., equity) flows to explore the different consequences for capital accumulation that may follow over the medium‐run. The presence of external economies of scale generates multiple equilibria and different kinds of capital flows may push investment in one direction or the other for sustained periods of time.

The impact of foreign capital shifts on economic activities and asset prices: a threshold VAR approach

Purpose The purpose of this paper is to investigate the impact of foreign capital shifts on economic activities and asset prices in South Korea. Design/methodology/approach The authors in this paper apply the Bayesian threshold vector autoregressive (TVAR) model to estimate the regimes of large and low inflows of foreign capital. Then, structural impulse-response analysis is used to check whether the responses of the variables differ across the estimated regimes. The model is estimated using quarterly data of foreign capital inflows, gross domestic product (GDP), consumer price index, credit to the private non-financial sector, real effective exchange rate (REER), stock returns and house prices. Findings The main findings suggest that large inflows of gross foreign capital, foreign direct investments (FDI) and foreign portfolio investments (FPI) are ineffective to boost economic growth, but large inflows of other foreign investments (OFIs) significantly contribute to GDP. The decreases in the foreign capital inflows are associated with larger depreciation of REER. The large inflows of gross foreign capital, FDI and OFIs are associated with further expansion of credit supply to private non-financial sectors. Research limitations/implications The policy implications of foreign capital inflows are of particular importance to all the emerging markets alike. However, the empirical analysis is limited to the case of South Korea due to various reasons. The experience with international capital inflows among emerging markets is heterogeneous. Therefore, it would be better to take each case of emerging market individually. In addition, TVAR analysis requires a long data sample, which unfortunately is not available for most of the emerging markets. Originality/value The foreign capital inflows are shown to be procyclical and notoriously volatile in many studies. Nevertheless, this topic has commonly been studied using linear VAR models, which do not properly deal with the cyclical characteristics of foreign capital inflows. This study attempts to resolve these methodological limitations by examining a non-linear VAR model that is capable of capturing the structural breaks associated with the cyclical behaviors of foreign capital inflows.

International factor mobility and environment in a dual agricultural economy

The purpose of this study is to investigate the influences that international factor movements have on the environment in developing country under agricultural dualism. By using a general equilibrium model that incorporates a modern agricultural sector in different stages, we analyse the effects of international factor movements on the environment. At the beginning of the modern agricultural sector, international labour movement has no influence on the environment; if the modern agricultural capital share in the economy increases to a certain level, international capital inflow improves the environment in the developing countries whereas international capital outflow harms the environment, otherwise, international capital inflow harms the environment whereas international capital outflow improves the environment. However, after the popularization of modern agriculture, international labour movement and international capital movement affect the environment in the same direction: factor inflow harms the environment, whereas outflow improves the environment. Thus, it is possible for the international factor movement be compatible with the environmental protection in a developing country.

International Capital Inflow and Sub-Saharan African Economy: Does Capital Inflow Lead Growth?

Sub-Sahara African (SSA) countries have become more integrated with the world economy since the early 1990s leading to a surge in international capital inflows, but have also experienced sporadic downfalls in their growth rates leading to instabilities in some macroeconomic variables. This paper examined the dynamic and causal relationship between economic growth and international capital inflow in SSA using data covering the period of 1990 to 2018. Through Structural Vector Autoregression (SVAR) impulse response and variance decomposition, the study found a positive relationship between growth and international capital inflow in SSA. It also found negative relationships between macroeconomic instability and economic growth; and macroeconomic instability and international capital inflow in SSA. In addition, through VAR Granger Causality or Block Exogeneity Wald Tests, the study found a unidirectional causal relationship running from growth to international capital inflow in SSA. The study also found that international capital inflow did not cause economic growth but economic growth attracts international capital inflows. Therefore, the study concluded that a buoyant and viable economy provides conducive business environment for international investors better than less viable economy. Thus, the study recommended that governments and policy makers in SSA should put in place policies that will promote economic growth to attract more international capital inflows which would augment the scarcely available domestic capital resources most especially in terms of knowledge, skills and other technological advancement, that would later translate into further economic growth in SSA region.

THE COMMODITY-FINANCE NEXUS: TWIN BOOM AND DOUBLE WHAMMY

ABSTRACT International commodity prices and capital inflows to developing countries are increasingly synchronized, subjecting commodity-dependent economies to double boom-bust cycles. On the one hand, there are a number of common monetary factors, notably international interest rates and the exchange rate of the dollar that influence commodity prices and capital inflows in the same direction. On the other hand, commodity prices and capital inflows reinforce each other through their influence on economic activity in developing countries. Capital inflows move pro-cyclically with commodity prices, aggravating both positive and negative external trade shocks. This synchronization has greatly heightened the vulnerability of commodity-dependent developing economies to global boom-bust cycles.

Contagion: Can It Occur Without Trading Relations?

The paper explains origin of financial crisis in one country and its spread to other countries - contagion, in a multi country dynamic model of international capital inflow. The origin of crisis is rooted in this model in the common international loan market; thus crisis can occur even when the countries are not interconnected via bilateral or multilateral trade and commerce. The structure can explain various episodes of financial crisis in a common framework. A shift in the risk perception of loan repayment for a particular country is capable of generating a stronger contagion effect than a general shift in risk perception of the lenders. The model can usefully be employed to address the policy issues pertaining to capital inflow from the developed countries to developing countries.

Effect of International Capital Inflows on Economic Growth of Nigeria

The study examined the effect of international capital inflows on economic growth of Nigeria for the periods, 1986 to 2016. The study employed four core channels of international capital inflows which includes foreign direct investment (FDI), official development assistance (ODA), personal remittances (REM), and external debt stock (EXTDS) into Nigeria as the explanatory variables and GDP growth rate as the dependent variable. The model of the study was hinged on the Harrod-Domar growth model and employed Johansen co-integration and Ordinary Least Square (OLS) techniques for data analyses. The result showed that international capital inflows have long run effect on economic growth of Nigeria. Specifically, the OLS revealed that FDI and REM had significant positive effects on economic growth. However, EXTDS and ODA had no significant effects on economic growth. The study further showed that international capital is a powerful tool for boosting economic growth of Nigeria(R-square = 71%). The recommendations among others include that policy makers should forthwith discourage the use of external debt and official development assistance in Nigeria.

Macroeconomic Determinants of Stock Market Fluctuations: The Case of BIST-100

The purpose of this study is to analyze the impacts of some prominent macroeconomic factors on the Turkish Stock Market index, BIST-100 (Borsa Istanbul-100). For centuries, and mostly since the 20th century, stock markets are at the heart of economies. In our era, the largest economic crises arise from the stock market instabilities and thus, the stock markets are the focus of interest of the economy. Economists, investors, and policymakers try to predict the tendency of share prices, which substantially depend on foreign and domestic macroeconomic factors. Within this purpose, this study tries to investigate the impact of some selected macroeconomic factors on BIST-100 index over the 2003Q1–2017Q4 period. The findings obtained from the quarterly data via the ARDL Bounds Test suggest that economic growth, the relative value of the domestic currency, portfolio investments and foreign direct investments raise the stock market index while interest rate and crude oil prices negatively affect it. The results briefly reveal that the Istanbul Stock Exchange Market needs stronger domestic currency, higher international capital inflows, and lower energy and investment costs.

통화정책이 자본유출입에 미치는 영향: 행태방정식 분석(Nonlinear Effects of Monetary Policy on International Capital Flows)

Korean Abstract: 본고에서는 통화정책이 정책기조별, 금리수준별, 시기별로 정책여건에 따라 자본유출입에 미치는 영향의 정도가 다른지 여부에 대해 점검해 보았 다. 자본이동에 대한 행태방정식을 대상으로 분석한 결과 정책기조별, 금리 수준별, 시기별로 정책여건에 따라 통화정책의 영향은 비선형성을 보이는 것으로 분석되었다. 정책기조별로 보면 정책긴축은 국내 투자수익률 상승 효과로, 정책완화는 미래경기에 대한 기대감(signaling effect)으로 자본유입 을 확대시키는 것으로 분석되고 있다. 금리수준별로 보면 저금리 수준에서 는 자본유출입에 대한 통화정책의 영향은 크지 않는 것으로 분석되고 있다. 또한 글로벌 금융위기 이후 저금리 기간 중에는 우리나라 통화정책이 자본 유출입에 미치는 영향이 약화된 것으로 추정되었다. 이는 향후 정책금리 수 준이 높아질수록 동 영향의 크기가 확대될 가능성이 있다는 것을 의미한다. 본고는 자본유출입 행태방정식을 통해 자본유출입에 대한 통화정책의 영 향을 직접적 영향과 간접적 영향으로 분해하고 누적적으로 나타나는 간접 적 영향이 통화정책의 비선형성으로 이어지고 있는 경로를 일부 확인하고 있다는 점에서 분석의 의의가 있다. 또한 행태방정식 추정이라는 점과 자본 이동이 국내적인 요인보다는 국제적인 요인에 영향을 받았을 수 있다는 분 석상 한계에도 불구하고 통화정책이 자본유출입에 대해 통계적으로 유의 한 비선형적 영향을 주고 있다는 실증분석 결과는 정책효과 분석에 있어 동 효과의 비선형성까지도 면밀히 고려할 필요가 있음을 시사한다. English Abstract: This paper investigates whether monetary policy has nonlinear effects on the flows of international capital. After estimating a behavioral equation for international capital flows, we find that tightening monetary policy shocks cause international capital inflows to increase by raising the returns on investment, and that easing monetary policy shocks also lead to increased inflows of international capital by affecting investors’ expectations of future economic conditions. We also find that the effects of monetary policy on international capital flows are not large during periods of low interest rates, and that in the low interest rate conditions since the global financial crisis its effects have weakened. This implies that, as the level of the Base Rate is increased in the future, the policy effects on international capital flows could be strengthened. The contribution of this paper is that, using our behavioral equation for international capital flows, we decompose the direct and indirect effects of monetary policy and check the nonlinear channel of monetary policy transmission to international capital flows. Although there are methodological limits in estimating the behavioral equation, the finding that monetary policy has statistically significant nonlinear effects on international capital flows implies that the monetary policy analysis should closely consider nonlinear effects as well.

Brics’ Foreign Debt Burden and its Impact on Core Institutional Basis

Creation of a multipolar international economy and economic relations is accompanied by shifting gravity centers of international finances, redistribution of positions on the global market for financial services in favor of large emerging countries and countries with transitional economies. This post crisis period triggered serious problems related to international capital inflows and outflows at the BRICS states. This is all due to a slow recovery of developed countries; a high probability of a full-scale debt crisis in some E.U. states; mounting uncertainties following financial reforms in some states, etc. But raising debt as an important way to finance speedy economic growth and import of technologies to the BRICS countries make their financial systems more vulnerable to exogenous stresses and shocks, which result in an unreasonable firming of national currencies. In our research, we have identified the risks and misbalances of global development, which affect BRICS, evaluated the influence of foreign debt and singled out the key growth trends. We have revealed the importance of the New Development Bank development, which will help solve urgent problems of its participants connected with their growing role in international economic relations: the creation of a regional financing mechanism as well as a core institutional basis to represent BRICS’ interests in the global financial structure and to become the missing link in interaction with global financial institutions.