Economic and monetary union accession and capital flows

Jiří Jonáš

Prague Economic Papers, 2003, vol. 2003, issue 3, 195-216

Abstract: The paper discusses the prospects for capital inflows to the Czech Republic before Economic and Monetary Union accession. It reviews the potential costs and benefits of capital flows and the history of capital flows to the Czech Republic, before turning to future capital inflows. It notes that different theoretical models provide different predictions about future capital inflows. To get further insight, the paper discusses the future capital inflows from the perspective of nonresidents' supply of external savings and residents' demand for external borrowing and from the perspective of external vulnerability related to large foreign direct investment (FDI) inflow. It concludes that FDI is likely to decline somewhat in the future, but increasing sovereign borrowing needs could lead to higher inflow of portfolio capital. The final section discusses the potential for capital inflows resulting from the so-called convergence plays and concludes that there is presently little incentive for convergence-play related capital inflows.

Keywords: foreign direct investment; EMU accession; capital flows; external vulnerability; convergence play (search for similar items in EconPapers)
JEL-codes: F21 F32 F36 G15 (search for similar items in EconPapers)
Date: 2003
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DOI: 10.18267/j.pep.214

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