Capital flows, country risk, and contagion

Norbert Fiess

No 2943, Policy Research Working Paper Series from The World Bank

Abstract: It has been widely recognized that both country-specific and global factors matter in explaining capital flows. The author presents an empirical framework that disentangles the relative weight of country-specific and global factors in determining capital flows. In essence, his approach first separates the common component of emerging country spreads from their country-specific component. The pure country risk and global risk components are then used as explanatory variables to account for the observed pattern of capital flows using multivariate cointegration analyses. The author is able to identify the relative weight of global and country-specific factors in explaining capital flows to Argentina, Brazil, Mexico, and Venezuela in the 1990s. When further decomposing country risk into its determinants, the author finds that within a small system it is possible to jointly identify the determinants of capital flows and sovereign bond spreads. We find that capital flows are driven by country risk and global factors ("contagion"and U.S. long-term interest rates), while country risk is determined by the primary balance-to-GDP ratio (-) and the ratio of public debt to GDP (+).

Keywords: Economic Theory&Research; Capital Markets and Capital Flows; International Terrorism&Counterterrorism; Banks&Banking Reform; Financial Intermediation; Banks&Banking Reform; Financial Intermediation; Economic Theory&Research; Macroeconomic Management; Environmental Economics&Policies (search for similar items in EconPapers)
Date: 2003-01-31
New Economics Papers: this item is included in nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi0page.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:2943

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().