The Effect of Capital Flows Composition on Output Volatility

Federico, Pablo ; Vegh, Carlos A. ; Vuletin, Guillermo

World Bank, Washington, DC

关键词: ADVANCED ECONOMIES;    AFFILIATED ORGANIZATIONS;    AMERICAN DEVELOPMENT BANK;    BENCHMARK;    BOND;   

DOI  :  10.1596/1813-9450-6386
RP-ID  :  WPS6386

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

A large literature has argued thatdifferent types of capital flows have different consequencesfor macroeconomic stability. By distinguishing betweenforeign direct investment and portfolio and otherinvestments, this paper studies the effects of thecomposition of capital inflows on output volatility. Thepaper develops a simple empirical model which, under certainconditions that hold in the data, yields three key testableimplications. First, output volatility should dependpositively on the volatilities of both foreign directinvestment and portfolio and other inflows. Second, outputvolatility should be an increasing function of thecorrelation between both kinds of inflows. Third, outputvolatility should be a decreasing function of the share offoreign direct investment in total capital inflows, for lowvalues of that share. The data provide strong support forall three implications, even after controlling for otherfactors that may influence output volatility, and afterdealing with potential endogeneity problems. These findingscall attention to the importance of taking into account thesynchronization and composition of capital flows for outputstabilization purposes, as opposed to just focusing on thevolatility of each component of capital flows.