Extreme Capital Flows in Emerging Markets: A Blessing or a Curse?

Document Type

Conference Proceeding

Conference Title

13th Annual Conference on Economic Growth and Development

Publication Date

12-2017

Abstract

The impact of extreme movements in capital flows on emerging market’s GDP is still an unresolved question in the international finance literature. A substantial literature has analyzed the effect of capital flows on output, but there is a lack formal analysis of causal effects of “extreme” flows on nations’s economic outcomes. I revisit the analysis of the effect of the extreme net inflows (surges) and extreme net outflows (flights) on aggregate output. I deal with the potential bias issues from non random assignment of surges and flights. Using a propensity score method for time series data in a local projection framework, I estimate the average effects of the extreme flows on country’s output. I use a statistical model for identifying these extreme flows. The results indicate that surges are contractionary in the medium horizon whereas the flights do not have any significant effect on output.

Comments

This article is openly accessible on the website of the Indian Statistical Institute in New Dehli, India.

The complete conference proceedings can be viewed at: https://www.isid.ac.in/~epu/acegd2017/program.html.

Publisher Statement

The Economics and Planning Unit at the Indian Statistical Institute helped organize this conference.

This conference was part of the celebration of the 125th birth year of Professor Prasanta Chandra Mahalanobis.

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