An Attempt to Analyze the Determinants and Effects of Sudden Stops of Capital Flows in Their Different Forms: The Case of Emerging Market Economies

Palandökenlier Berk () and Bal Harun ()
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Palandökenlier Berk: Gaziantep University Social Sciences M.Y.O., Gaziantep, Türkiye, Postal: Lecturer, Office Services and Secretariat Department, Gaziantep University Social Sciences M.Y.O., Gaziantep, Türkiye.
Bal Harun: Çukurova University, Sarıçam, Adana, Türkiye, Postal: Prof. Dr., Department of Economics, Faculty of Economics and Administrative Sciences, Çukurova University, Sarıçam, Adana, Türkiye.

Journal of Economic Integration, 2025, vol. 40, issue 1, 119-143

Abstract: The objective of this paper is to investigate the main determinants of sudden stops of different types of gross capital inflows and the impact of such events for 13 Emerging Market Economies (EMEs) over the period 2006Q1-2021Q2. In this framework, a complementary log-log model is used to identify the factors that trigger sudden stop events. Moreover, a structural VAR analysis technique is used to identify the macro-financial implications of sudden stops. The analysis reveals that both global factors and local conditions have a significant impact on sudden stops, although global events (especially global risk and uncertainty perceptions and contagion effects) are relatively more dominant. We also find that an overabundance of short-term capital inflows can increase the risk of sudden stops, although the quality of institutions seems to have a more significant impact on sudden stops related to short-term inflows. Finally, the findings of the structural VAR analysis suggest that the economic effects of sudden stop shocks, especially those stemming from debt-based capital inflows, are much larger and negative.

Keywords: Gross Capital Inflows; Sudden Stops; Political Risk Components; Effects of Sudden Stops (search for similar items in EconPapers)
JEL-codes: F32 F36 F40 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0937

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