Development threshold, capital flows, and financial turbulence

Ding Ding and Yothin Jinjarak

The North American Journal of Economics and Finance, 2012, vol. 23, issue 3, 365-385

Abstract: We study capital flows in a panel of 130 countries, and derive the implications for the observed patterns of capital flows and capital controls before and into the crisis of 2008–11. We find that the size of capital flows is positively correlated with country's income level. In addition, capital flight has a non-linear relationship with the income level. Using the Hansen threshold estimation, we identify a three-stage threshold effect: for low-income countries (GDP per capita below US$ 3,000), capital flight increases as the income level rises; and only after the economy passes a threshold level (GDP per capita above US$ 5,000), capital flight declines with income. We conclude with a case study of Brazil and Korea, observing that the decisions to implement capital control measures tend to be pushed around by the feedbacks among economic growth, currency appreciation, and the global financial conditions.

Keywords: Capital flows; Capital flight; Economic development; Capital control; Financial liberalization; Financial crisis (search for similar items in EconPapers)
JEL-codes: F21 F32 F43 G01 O16 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:23:y:2012:i:3:p:365-385

DOI: 10.1016/j.najef.2012.03.008

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