Frontier and Emerging Markets: A Perspective from Portfolio Flows and Financial Integration

Nordine Abidi, Burcu Hacibedel and Mwanza Nkusu
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Nordine Abidi: European Central Bank
Mwanza Nkusu: International Monetary Fund

Journal of Banking and Financial Economics, 2019, vol. 1, issue 11, 19-45

Abstract: This paper investigates to what extent low-income developing countries (LIDCs) characterized as frontier markets (FMs) have begun to be subject to capital flows dynamics typically associated with emerging markets (EMs). Using a sample of developing countries covering the period 2000–14, we show that: (i) average annual portfolio flows to FMs as a share of gross domestic product (GDP) outstripped those to EMs by about 0.6 percentage points of GDP; (ii) during years of heightened stress in global financial markets, portfolio flows to FMs dried up like those to EMs; and that (iii) FMs have become more integrated into international financial markets. Our findings confirm that, in terms of portfolio flows, FMs have become more similar to EMs than to the rest of LIDCs and are therefore more vulnerable to swings in global financial markets conditions. Accordingly, it is important to have in place frameworks to strengthen FMs’ resilience to adverse capital flows shocks.

Keywords: Frontier Markets; Portfolio flows; Financial Integration; Balance of Payments Needs (search for similar items in EconPapers)
JEL-codes: E44 F3 G0 O57 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:sgm:jbfeuw:v:1:y:2019:i:11:p:19-45

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