Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries

By Juliana Dutra Araujo, Antonio David, Carlos van Hombeeck, Chris Papageorgiou

July 17, 2015

Preview Citation

Format: Chicago

Juliana Dutra Araujo, Antonio David, Carlos van Hombeeck, and Chris Papageorgiou. Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Balance of payments, Capital flows, Capital inflows, International trade, Output gap, Private capital flows, Production, Terms of trade

Keywords: A number of LIDCs, Business cycle, Capital control, Capital flow, Capital Flows, Capital inflows, Cyclicality, Dependent variable, Emerging Markets, EMs relative to LIDCs, EMs shock, FDI capital flow, Flows to LIDCs, Global, LIDCs relative, Low-Income Developing Countries, Output gap, Potential GDP, Private capital flows, Relative to EMs, Terms of trade, Volatile capital flow, WP

Publication Details

Pages:

42
Volume:

---
DOI:

---
Issue:

---
Series:

Working Paper No. 2015/163
Stock No:

WPIEA2015163
ISBN:

9781513508146
ISSN:

1018-5941

FACTSHEETS

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

IMF Working Papers