Gross capital inflows and outflows: Twins or distant cousins?

ÖZMEN E., Taşdemir F.

Economic Systems, vol.45, 2021 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 45
  • Publication Date: 2021
  • Doi Number: 10.1016/j.ecosys.2021.100881
  • Journal Name: Economic Systems
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit, Public Affairs Index
  • Keywords: Advanced economies, Cointegration, Emerging market economies, Foreign direct investment, Gross capital flows, Portfolio flows, GLOBAL FINANCIAL CYCLE, BUSINESS CYCLES, FLOWS, RISK
  • Middle East Technical University Affiliated: Yes

Abstract

© 2021 Elsevier B.V.We investigate the long-run relations and equilibrium correction mechanisms between gross capital inflows, outflows and global financial conditions for advanced (AE) and emerging market economies (EME). According to our results, the puzzling findings of the recent literature suggesting that domestic and foreign investors act as distant cousins, leading to capital inflows and outflows to act as twins, tend to be supported for the long run. The short-run relations, however, often appear to be consistent with the conventional theory suggesting that the behaviors of residents and non-residents do not systematically diverge from each other. Consistent with flight to safety concerns, capital outflows from EME and capital inflows to AE tend to increase in the long run in response to worsening global financial conditions. We find that these results essentially hold for the main components of capital flows as well.