Effects of Financialization of Energy Markets on International Capital Flows in Emerging Economies

Tokuo Iwaisako and Huan Li
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Tokuo Iwaisako: Professor, Institute of Economic Research, Hitotsubashi University
Huan Li: Ph.D. student, Graduate School of Economics, Hitotsubashi University

Public Policy Review, 2019, vol. 15, issue 1, 21-34

Abstract: This paper analyzes the effects of energy prices on capital flows in emerging market economies (EMEs) by examining economic factors behind energy price fluctuations. Adopting Kilian’s identification strategy for VAR, we decompose the crude oil price changes into three structural shock factors―the supply factor, the real-economy demand factor and the price change specific to the crude oil market―and conduct a panel estimation including those structural factors as explanatory variables. We find that the effects of price changes specific to the crude oil market have been strong after 1990, in the sample period examined in this paper. Estimating the same regressions for individual countries’ data, we also find that price changes specific to the crude oil market have had clear positive effects on capital inflows into emerging countries heavily dependent on imports for crude oil supply, rather than oil-exporting ones. This finding is inconsistent with the interpretation by previous studies that the positive correlation between capital inflows into emerging countries and energy prices is due to the prevalence of resource-exporting countries among emerging countries.

JEL-codes: C32 F32 Q43 (search for similar items in EconPapers)
Date: 2019
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