Patterns of Capital Flows to Emerging Markets: A Theoretical Perspective

Zhaohui Chen and Mohsin Khan

No 1997/013, IMF Working Papers from International Monetary Fund

Abstract: This paper reviews some of the basic patterns of international capital flows to emerging markets in recent years, including the composition of capital flows, intraregional flow patterns, and the geographical distribution of the flows. A theoretical model that sheds new light on these observed patterns is developed. This model focuses on the cost of financing aspect of capital flows, and shows that the patterns of capital flows are influenced by the combined effects of financial market development and growth potential in the recipient countries. The theoretical predictions of the model are shown to be consistent with the stylized facts.

Keywords: WP; market; capital flow; economy; Capital flows; emerging markets; cost of financing; contract and regulation; portfolio flow; portfolio investment; portfolio equity flow; market efficiency configuration; market mechanism; expected return; equity portfolio investor; market parameter; Foreign direct investment; Emerging and frontier financial markets; Capital inflows; Portfolio investment; Asia and Pacific; Western Hemisphere; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 32
Date: 1997-01-01
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Citations: View citations in EconPapers (24)

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