Essays on international capital flows

Guide(s)

Anshuman, V Ravi

Department

Finance and Accounting

Area

Finance and Accounting

University

Indian Institute of Management Bangalore

Place

Bangalore

Publication Date

3-31-2024

Year Awarded

March 2024

Year Completed

March 2024

Year Registered

June 2018

Abstract

The first essay of the dissertation examines the incidence of extreme capital flow episodes in 59 advanced and emerging economies from 1985 to 2020. We create new datasets on different types of episodes (surges, stops, flight, and retrenchment) based on the components of capital flows (portfolio debt, portfolio equity, banking, and foreign direct investment (FDI) flows). We find that the incidence of episodes has declined after the Global Financial Crisis (GFC), which is primarily driven by advanced economies. In the second essay, we determine the drivers of extreme capital flow episodes and how they have changed since the GFC, how they differ between advanced and emerging economies, and between the various components of capital flows. We find that episodes have become less responsive to risk and global growth and more responsive to oil price, particularly for emerging economies. Our analysis indicates that episodes based on portfolio and banking flows are correlated with external (push) and domestic (pull) factors, while episodes based on FDI flows are more idiosyncratic. In the third essay, we model the entire probability distribution of short-term aggregate capital flows (1-2 quarters ahead) for 29 emerging economies from 2000 to 2018. This helps us investigate the role of the structure of the global financial system, domestic institutional structures, and policy actions in insulating emerging economies from large swings in capital flows during adverse global financial conditions. Our results show that these variables have heterogeneous effects on the distribution of capital flows, which are more pronounced in the left tails. We find that higher foreign exchange reserves shield emerging economies from large outflows by non-residents during adverse global financial conditions, while a higher share of foreign exchange-denominated debt has the opposite effect. Higher share of foreign-exchange denominated debt and inflation targeting policies induce larger repatriation of capital by residents following global financial shocks. Flexible exchange rate regimes, greater financial development, and better institutional quality are associated with larger inflows by non-residents, independent of global financial conditions. Macroprudential policies and capital controls mitigate the sensitivity of capital flows to global financial shocks, primarily affecting banking and, to a lesser extent, portfolio (debt and equity) flows. We do not find evidence of spillovers of macroprudential policies, whereas tighter capital controls generate spillovers to other emerging economies with similar level of financial development.

Pagination

ix, 141p.

Copyright

Indian Institute of Management Bangalore

Document Type

Dissertation

DAC Chairperson

Anshuman, V Ravi

DAC Members

Murali, Srinivasan; Roy, Rishideep

Type of Degree

Ph.D.

Relation

DIS-IIMB-FPM-P24-15

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