 Do Capital Flows Reflect Economic Fundamentals in Developing Countries?Atish Ghosh () and Jonathan Ostry No 1993/034, IMF Working Papers from International Monetary Fund Abstract: This paper proposes a methodology for testing whether capital flows to developing countries are determined by economic fundamentals or by purely speculative forces. We use the intertemporal optimizing approach to current account determination as our benchmark for judging the behavior of capital flows. According to this approach, capital flows should act as a buffer to smooth consumption in the face of temporary shocks to national cash flow, defined as output less investment less government expenditures. The results are encouraging. For a large sample of developing countries, economic fundamentals are indeed found to be the most important determinant of capital flows. Keywords: WP; null hypothesis; benchmark current account series; national cash flow; current account movement; current account behavior; variance ratio; current account determination; Current account; Capital flows; Currencies; Consumption distribution; Consumption; Western Hemisphere; Middle East; Africa (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1993/034 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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