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Four essays on the significance of international capital movements
Abstract
Global capital flows are becoming increasingly important in the world economy. In a series of four essays, we try to analyze the “multidimensional” role of capital flows in influencing the output and volatility of asset prices like exchange rate and stock prices across developing and developed countries. The overall evidence seems to support the intertemporal model of the current account, which recognizes an important role for foreign capital inflows. Our robust time-series methodology helps to uncover country specific differences in realizing the gains from foreign capital inflows. United States with its open financial markets and no restrictions of capital flows and Chile with its partial capital account restriction seem to gain positively from the foreign capital flows. The Chilean example also demonstrates the ability of capital inflows to circumvent controls. The usual assertion that foreign direct investment is better than portfolio flows for developing countries is not supported by empirical evidence. Surprisingly, we also find a positive role for net other investment assets, a category that has been hitherto neglected. I find that the usual distinction between capital flows that long-term flows are beneficial to the economy and short-term flows are disruptive is not empirically supported. However, further research is required to identify the channels through which different forms of capital flows influence economic growth. The role of capital flows in causing real effective exchange rate appreciation (REER) is very modest and more importantly capital flows seem to smooth the volatility of REER in both Chile and India. The financial sector liberalization in India has reduced the volatility of the stock market, which influences economic growth by reducing cost of capital.
Subject Area
Economics|Finance
Recommended Citation
Sivakumar, Sivaprakasam, "Four essays on the significance of international capital movements" (1998). ETD collection for University of Nebraska-Lincoln. AAI9912695.
https://digitalcommons.unl.edu/dissertations/AAI9912695