 DIGITAL INFRASTRUCTURES AS THE NEW PIPES OF GLOBAL CAPITALJasna Tonovska () and
Predrag Trpeski ()
No 31, Proceedings of the 5th International Conference "Economic and Business Trends Shaping the Future" 2024 from Faculty of Economics-Skopje, Ss Cyril and Methodius University in Skopje Abstract: Purpose Global capital increasingly flows not only through traditional financial markets and institutions, but through digital infrastructures—payment platforms, mobile banking systems, and online transaction networks that have become the new pipes of the global economy. These infrastructures shape how quickly capital enters, how securely it is intermediated, and how abruptly it can reverse. In this sense, digitalization is now part of the architecture of the global economy, conditioning the volatility that defines openness. Traditional analyses of the drivers of capital flows and their volatility, built around push factors (global shocks) and pull factors (domestic fundamentals), cannot fully explain why countries with similar fundamentals often face very different volatility profiles (Koepke, 2015; Cerutti et al., 2015; Fratzscher, 2011). As Carney (2019) noted, the pipes through which capital flows are transmitted matter as much as the drivers themselves. This study builds directly on that insight and provides a systematic empirical evidence that digital infrastructures act as pipes that shape the stability of global capital. Design/methodology/approach We extend the classical push–pull framework into a push–pull–pipes model (Pagliari et al., 2017; Wang, 2019). Push factors include a Global Financial Conditions Index (data sourced from Capital Economics), U.S. real GDP growth volatility (estimated volatility based on data sourced from FRED), and Global Economic Conditions volatility (estimated volatility based on data sourced from KOF Swiss Economic Institute). Pull factors comprise a Domestic Financial Conditions Index (data sourced from Capital Economics, Boraccia et al., 2023), a Financial Development Index (data sourced from the IMF), Capital Account Openness (Chinn–Ito index; Chinn et al., 2008), and Real Effective Exchange Rate volatility (estimated volatility based on data sourced from Bruegel). Pipes are measured by Relative Sovereign Credit Ratings (score versus the global median; De et al., 2020) and a Relative Digital Infrastructure Index (mobile and internet banking penetration per 1,000 adults, benchmarked globally). σ_kt^ij= α_k^ij+β^ij 〖PUSH〗_t+γ^ij 〖PULL〗_(k,t-1)+δ^ij 〖PIPES〗_(k,t-1)+ε_kt^ij In this study, we explicitly embed digital infrastructures within the pipes dimension, thereby expanding the volatility debate beyond incentives to the channels through which capital is transmitted. Regarding the methodology, the analysis uses an unbalanced quarterly panel of advanced and emerging, and developing economies over 2000Q1–2023Q1. The dependent variable σ_kt^ij is the volatility of gross capital inflows, which is estimated as follows. For each economy and instrument (direct, portfolio, and other investment), we first estimate residuals from an ARIMA (1,1,0) model on the quarterly series; second, the standard deviation of these residuals is calculated as our volatility measure. The econometric specification employs panel fixed effects to control for unobserved country heterogeneity, with Driscoll–Kraay standard errors to address heteroskedasticity and autocorrelation. We estimate separate regressions for the drivers of volatility in FDI, portfolio, and other-investment inflows. We also run the specifications on the EMDE subsample to examine this group more closely. Findings Across the full sample, push factors dominate: global financial conditions and U.S. cycle volatility account for most of the variation in capital-flow volatility. Pull factors are uneven: stronger financial development and greater openness tend to attract flows but often raise volatility, while REER volatility remains a persistent destabilizer. Within this structure, pipe condition outcomes. Relative sovereign ratings are procyclical—upgrades attract inflows that are often more volatile—and digital infrastructures display a negative and statistically significant association with the volatility of total, portfolio, and especially banking-related inflows, suggesting that countries with deeper digital systems experience smoother financial intermediation and lower exposure to sudden stops. In EMDEs, however, the estimated coefficients on the Digital Infrastructure Index remain negative but largely insignificant, indicating that the stabilizing potential of digital pipes does not systematically materialize in weaker institutional environments. This pattern implies that while digitalization may facilitate access and speed of intermediation, it cannot by itself anchor stability without complementary institutional quality and regulatory depth. In such contexts, digital infrastructures operate more as accelerators of integration than as absorbers of volatility—enhancing financial connectivity but offering limited insulation from global shocks. Originality/value For EMDEs, investing in digital infrastructures should be viewed both as a development priority and as a conditional macro-financial resilience strategy. While digital systems can expand access and efficiency, their stabilizing potential remains largely unrealized in the absence of strong institutional and regulatory frameworks. Without these complements, digital infrastructures enhance financial connectivity but offer limited insulation from external shocks, operating more as channels of speed than of stability. Strengthening institutional quality and financial supervision is therefore essential for digital pipes to function as genuine macro-stabilizers. At the global level, integrating the “pipes” dimension—particularly digital infrastructures—into the IMF’s Integrated Policy Framework would acknowledge their role as structural complements to monetary, fiscal, and macroprudential instruments (Basu et al., 2023; IMF, 2023; IMF, 2022). Doing so would allow global surveillance and policy design to better capture how technological architectures condition the transmission and volatility of capital in an increasingly digitalized financial system (IMF, 2023). This study reconceptualizes the analysis of capital flow volatility for the digital era by extending the classical push–pull framework into a structural push–pull–pipes perspective. The evidence confirms that while global and domestic macro-financial conditions remain the primary determinants of volatility, the channels through which capital circulates increasingly matter (Reuter et al., 2025). Among these, digital infrastructures emerge as a new driver of capital flow volatility. Across all economies, deeper digital infrastructures are associated with lower volatility in total, portfolio, and banking inflows, reflecting smoother intermediation and improved informational efficiency. In EMDEs, however, the effect remains statistically weak, implying that digital systems alone cannot substitute for institutional strength. Their stabilizing potential is contingent on regulatory quality, supervisory depth, and the credibility of financial governance. Digital pipes are reshaping the speed, reach, and resilience of capital mobility. Recognizing their dual role—facilitating integration while conditioning volatility—should become central to future macro-financial frameworks. Keywords: Capital flows volatility; Drivers; Push; Pull; Pipes; Digital infrastructure (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:aoh:conpro:2025:i:6:p:308-312 Access Statistics for this paper More papers in Proceedings of the 5th International Conference "Economic and Business Trends Shaping the Future" 2024 from Faculty of Economics-Skopje, Ss Cyril and Methodius University in Skopje Contact information at EDIRC. |
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