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GROSS CAPITAL INFLOWS AND OUTFLOWS: TWINS OR DISTANT COUSINS?

Erdal Özmen () and Fatma Taşdemir
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Erdal Özmen: Department of Economics, Middle East Technical University, Ankara, Turkey

No 1807, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: We investigate the long-run relations and equilibrium correction mechanisms between gross capital inflows, outflows and global financial conditions for advanced and emerging market economies. According to our results, the findings of the recent empirical literature, suggesting that twin behaviour of capital inflows and outflows resulting from domestic and foreign investors to behave as distant cousins tend to be the case for the long-run. The short-run relations, however, often appear to be consistent with the conventional theory suggesting that the behaviours of residents and non-residents do not systematically diverge from each other. Consistent with the flight to safety concerns, capital outflows from EME and capital inflows to AE tend to increase in the long-run in response to worsening global financial conditions. We find that, these results essentially hold also for the main components of capital flows.

Keywords: Advanced economies; Cointegration; Emerging market economies; Equilibrium correction; Foreign direct investments; Gross capital flows; Portfolio flows (search for similar items in EconPapers)
JEL-codes: F21 F30 F32 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2018-04, Revised 2018-04
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http://erc.metu.edu.tr/en/system/files/menu/series18/1807.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:1807

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