The volatility of capital flows to emerging markets and financial services trade

Roland Beck

No 2000/11, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: This paper examines empirically the question whether the presence of foreign banks and a liberal trade regime with regard to financial services can contribute to a stabilization of capital flows to emerging markets. Since foreign banks, so the argument goes, provide better information to foreign investors and increase transparency, the danger of herding is reduced. Previous findings by Kono and Schuknecht (1998) confirmed empirically that such an effect does exist. This study expands their data set with respect to the length of the time period and the number of countries. Contrary to Kono and Schuknecht, it is found that foreign bank penetration tends to rather increase the volatility of capital flows. The trade regime variables are not significant in explaining cross-country variations in the volatility of capital flows. This result does not change significantly when alternative measures of volatility are considered.

Keywords: Financial Services Trade; Capital Flows (search for similar items in EconPapers)
JEL-codes: F13 F30 G20 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200011

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