Investigating the relationship between financial liberalization and capital flow waves: A panel data analysis

Haizhen Yang, Fangfang Shi, Jie Wang and Zhongbo Jing

International Review of Economics & Finance, 2019, vol. 59, issue C, 120-136

Abstract: This paper examines whether financial liberalization predisposes countries to capital flow waves. After identifying the waves of FDI, portfolio and other flows, we investigate the relationships between those waves and financial liberalization. Our results demonstrate that waves of these three kinds of capital flows respond quite differently to financial liberalization. Specifically, in emerging countries, surges for the type of other flows show a higher propensity following financial liberalization, while the likelihood of surge episodes of portfolio flows significantly decrease for developed countries. In addition, liberalization may eventually trigger capital flight in portfolio flows in emerging economies. Our conclusions are tested for various scenarios and prone to be robust.

Keywords: Financial liberalization; Capital flows; Extreme volatility; Panel data analysis (search for similar items in EconPapers)
JEL-codes: C23 F36 F39 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:59:y:2019:i:c:p:120-136

DOI: 10.1016/j.iref.2018.08.011

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