European Parliament Library

Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries, Juliana Araujo, Antonio David, Carlos van Hombeeck, Chris Papageorgiou

Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks
Table Of Contents
Cover; Abstract; Contents; I. Introduction; II. Existing Literature; A. Theoretical Underpinnings between Capital Flows and the Economic Cycle; B. Existing Empirical Work on the Cyclicality of Capital Flows; III. Stylized Facts; A. A New Database on Gross Capital Flows to LIDCs; B. A First Look at the Cyclicality of Private Capital Inflows in LIDCs; IV. Estimation; A. Estimable Equation; B. Control Variables; V. Baseline Results; VI. Robustness Checks; A. GMM Regressions; B. Countries with Surges in Capital Inflows; C. Risk-on, Risk-off Regimes
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (43 p.)
Specific Material Designation
Form Of Item

Library Locations

  • EP Library Luxembourg

    Rue du Fort Thüngen, Luxembourg, L-1313, LU
  • EP Library Strasbourg

    7 Place Adrien Zeller, Allée du Printemps, Strasbourg, F-67070, FR
  • EP Library Brussels

    60 rue Wiertz, Brussels, B-1047, BE