Demir, Firat (2007): Volatility of short term capital flows and socio-political instability in developing countries: A review.
This is the latest version of this item.
Download (268kB) | Preview
The paper reviews the theoretical and empirical evidence on the relationship between financial liberalization and socio-political risk by identifying the inter-dependent nature of socio-political and economic fault lines. In particular, the research examines the dynamic relationship between the volatility of short-term capital flows and socio-political instability. Accordingly, the socio-political risk is argued to be endogenously determined with the volatility of short term capital inflows such that increasing volatility by disrupting market activities, domestic investment and growth increases socio-political risk, which further feeds into the volatility of such flows. Using evidence from three major developing countries that are Argentina, Mexico and Turkey and applying Granger causality tests and Impulse Response Functions, the paper finds support for the presence of an endogenous relationship between the volatility of short-term capital inflows and socio-political instability. The results challenge the previous research regarding the use of political risk as a purely exogenous variable.
|Item Type:||MPRA Paper|
|Institution:||University of Oklahoma|
|Original Title:||Volatility of short term capital flows and socio-political instability in developing countries: A review|
|Keywords:||Short Term Capital Flow Volatility, Socio-Political Instability, Developing Countries|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements
O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries
|Depositing User:||Firat Demir|
|Date Deposited:||22. Jan 2008 16:20|
|Last Modified:||16. Mar 2013 00:33|
Adams, R. H. (2004). Economic growth, inequality and poverty: estimating the growth elasticity of poverty, World Development, 32(12), 1989-2014. Aizenman, J. & Marion, N. (1996). Volatility and the investment response, NBER Working Paper No: 5841, Cambridge, MA: National Bureau of Economic Research. Alesina, A. & Tabellini, G. (1989). External debt, capital flight and political risk, Journal of International Economics, 27(3-4), 199-220. Alesina, A. & Rodrik, D. (1994). Distributive politics and economic growth, Quarterly Journal of Economics, 109(2), 465-490. Alesina, A. & Perotti, R. (1994). The Political economy of economic growth: A Critical Survey of the Recent Literature, The World Bank Economic Review, 8(3), 351-371. Alesina, A. & Perotti, R. (1996). Income distribution, political instability and investment, European Economic Review, 40(6), 1203-1228. Alesina, A. Ozler, S., Roubini, N. & Swagel, S. (1996). Political instability and economic growth., Journal of Economic Growth, 1(2), 189-212. Alfaro, L. Kalemli-Ozcan, S. & Volosovych, V. (2004). Volatility of capital flows: bad policies or bad institutions? Paper Presented at the NBER Conference on International Capital Flows, December 17-18, 2004, Cambridge, MA. Asteriou, D. & Price, S. (2001). Political instability and economic growth: UK time series evidence, Scottish Journal of Political Economy, 48(4), 383-399. Bailey, W. & Chung, Y.P. (1995). Exchange rate fluctuations, political risk, and stock returns: some evidence from an emerging market, The Journal of Financial and Quantitative Analysis, 30(4), 541-561. Bank for International Settlements (BIS) (2005). Triennial Central Bank Survey, Basel: BIS Barro, R. (1991). Economic growth in a cross section of countries, Quarterly Journal of Economics 106(2), 407-443. Barro, R. J. (1999). Inequality, growth, and investment, NBER Working Paper no.7038, Cambridge, MA: National Bureau of Economic Research. BBC (2002). Half of Argentines below poverty line, BBC News. Available at http://news.bbc.co.uk/2/hi/business/1981054.stm Beck, R. (2001). Volatility of capital flows to emerging markets and the financial servives trade, Russian and East European Finance and Trade, 37(3), 5-24. Berg, J. & Taylor, L. (2000). External liberalization, economic performance, and social policy, CEPA Working Paper Series I, Working Paper no. 12, February, New School University: Center for Economic Policy Analysis. Bilson, C. M., Brailsford, T. J. & Hooper, V. C. (2002). The explanatory power of political risk in emerging markets, International Review of Financial Analysis, 11(1), 1-27. Birdsall, N. & Szekely, M. (2003). Bootstraps, not band-aids: poverty, equity and social policy, in: P. P. Kucsynski & J. Williamson (Eds.), After the Washington Consensus: Restarting Growth and Reform in Latin America, pp. 49-73 (Washington, DC.: Institute for International Economics). Biswas, R. (2002). Determinants of foreign direct investment, Review of Development Economics, 6(3), 492-504. Brewer, T. L. & Rivoli, P. (1990). Politics and perceived country creditworthiness in international banking, Journal of Money, Credit and Banking, 22(3), 357-369. Brunetti, A. (1997). Political variables in cross-country growth analysis, Journal of Economic Surveys, 11(2), 163-190. Buch, C. M., Dopke, J. & Pierdzioch, C. (2005). Financial openness and business cycle volatility, Journal of International Money and Finance, 24(5), 744-765. Caballero, R. & Dornbusch, R. (2002). Argentina: A Rescue Plan That Works. mimeo MIT, February 27, 2002. Summarized in the Financial Times, 8 March. under the title “Argentina cannot be trusted” Calvo, G. A., Leiderman, L. & Reinhart, C. M. (1993). Capital inflows and real exchange rate appreciation in Latin America: the role of external factors, IMF Staff Papers, 40(1), 108-151. Calvo, G. (1998). Varieties of capital-market crises, in: G. Calvo & M. King (Eds.) The Debt Burden and its Consequences for Monetary Policy, pp.181-202 (New York, St. Martin's Press). Calvo, G. A. & Mendoza, E. (2000). Rational contagion and the globalization of securities markets. Journal of International Economics, 51(1), 79-114. Campos, N. F. & Nugent, J. B. (2002a). Investment and instability, Mimeo, University of Southern California. Campos, N. F. & Nugent, J. B. (2002b) Who is afraid of political instability, Journal of Development Economics, 67(1), 157-172. Carmignani, F. (2003). Political instability, uncertainty and economics, Journal of Economic Surveys, 17(1), 1-54. Cukierman, A., Edwards, S. & Tabellini, G. (1992). Seigniorage and political instability, American Economic Review, 82(3), 537-555. Demir, F. (2004). A failure story: politics and financial liberalization in Turkey, revisiting the revolving door hypothesis, World Development, 32 (5), 851-869. Demir, F. (2007a). The rise of rentier capitalism and the financialization of real sectors in developing countries.” Review of Radical Political Economics, 39(3), 351-359 Demir, F. (2007b). Macroeconomic uncertainty, private investment and financialization of real sectors in emerging markets. Mimeo, University of Oklahoma. Demir, F. (2008a). Macroeconomic uncertainty and private investment in Argentina, Mexico and Turkey”. Forthcoming in Applied Economics Letters. Demir, F. (2008b). Volatility of short term capital flows, financial anarchy and private investment in emerging markets. Forthcoming in Journal of Development Studies. Deppler, M. (2001). IMF worked with authorities to solve Turkish problem: A letter to the Editor, Financial Times 19 March. Diamonte, R. L., Liew, J. M. & Stevens, R. L. (1996). Political risk in emerging and developed markets, Financial Analysts Journal, May/June, 71-76. Dornbusch, R., Goldfajn, I. & Valdes, R. O. (1995). Currency crises and collapses, Brooking Papers on Economic Activity, 2, 219-270. Driver, C. & Moreton, D. (1991). The influence of uncertainty on UK manufacturing investment, Economic Journal, 101(409), 1452-1459. Dutt, A.K. & Mukhopadhyay, K. (2005). Globalization and the inequality among nations: A VAR approach, Economics Letters 88(3), 295-299. Easterly, W., Islam, R. & Stiglitz, J. E. (2001). Shaken and stirred: explaining growth volatility, Presented at Annual World Bank Conference on Development Economics, Washington D.C: The World Bank. Ehrlich, I. (1973). Participation in illegal activities: a theoretical and empirical investigation, Journal of Political Economy, 81(3), 521-65. Eichengreen, B., Rose, A. K. & Wyplosz, C. (1995). Exchange market mayhem: the antecedents and aftermath of speculative attacks. Economic Policy, 21, 249-312. Erb, C. B., Harvey, C. H. & Viskanta, T. E. (1995). Country risk and global equity selection, Journal of Portfolio Management, 21(2), 74-83. Fajnzylber, P., Lederman, D. & Loayza, N. (2000). Crime and victimization: an economic perspective, Economia 1(1), 219-278. Fallon, P. & Lucas, R. E.B. (2002). The impact of financial crises on labor markets, household incomes, and poverty: a review of evidence, World Bank Research Observer, 17(1), 21-45. Fedderke, J.W. & Liu, W. (2002). Modeling the determinants of capital flows and capital flight with an application to South African data from 1960 to 1965, Economic Modeling, 19(3), 419-444. Feder G. & Uy, L. V. (1985). The determinants of international creditworthiness and their policy implications, Journal of Policy Modeling, 7(1), 133-156. Feder, G. & Ross, K. (1982). Risk assessments and risk premiums in the Eurodollar market, Journal of Finance, 37(3), 679-692. Federer, J. (1993). The Impact of Uncertainty on Aggregate Investment Spending, Journal of Money, Credit and Banking, 25(1), 30-48. Felix, D. (1998). Asia and the crisis of financial globalization, in: D. Baker, G. Epstein & R. Pollin (Eds.) Globalization and Progressive Economic Policy. pp.163-191 (Cambridge, Cambridge University Press). Fielding, D. (2003). Modeling political instability and economic performance: Israeli investment during the Intifada, Economica, 70(277), 159-186. Fitzgerald, E. V. K. (2001). Short term capital flows, the real economy and income distribution in developing countries, in: S. Griffith–Jones, M. F. Montes & A. Nasution (eds) Short Term Capital Flows and Economic Crisis. pp.29-51 (UNU/WIDER: Oxford University Press). Fleisher, B. M. (1966). The effect of income on delinquency, American Economic Review, 56, pp. 118-37. Freeman, R. (1994). Crime and the job market, NBER Working Paper no.4910, Cambridge, MA: National Bureau of Economic Research. Frenkel, R. and Ros, J. (2006). Unemployment and the real exchange rate in Latin America. World Development, 34(4), 631-646. Gabriele, A., Boratav, K. & Parikh, A. (2000). Instability and volatility of capital flows to developing countries, The World Economy, 23(8), 1031-1056. Galeotti, M. & Schiantarelli, F. (1994). Stock market volatility and investment: do only fundamentals matter? Economica, 61(242), 147-165. Grabel, I. (1995). Assessing the impact of financial liberalization on stock market volatility in selected Developing Countries. The Journal of Development Studies, 31(6), 903-917. Griever, W. L., Lee, G. A. & Warnock, F. E. (2001). The U.S. system for measuring cross-border investment in securities: a primer with a discussion of recent developments, in: Federal Reserve Bulletin, pp.634-650 (Federal Reserve Bank October). http://www.ustreas.gov/tic/frbulo01.pdf Halac, M. & Schmukler, S. L. (2003). Distributional effects of crises: the role of financial transfers, Policy Research Working Paper no.3173. The World Bank: Washington, D.C. Harms, P. (2002). Poverty and political risk. Review of International Economics, 10(2), 250-262. Hausmann, R. & Gavin, M. (1995). Overcoming volatility. Special Report, Economic and Social Progress in Latin America, Washington D.C.: Inter-American Development Bank. Hausmann, R. & Gavin, M. (1996). Securing stability and growth in a shock prone region: the policy challenge for Latin America, Inter-American Development Bank, Working Paper no.315, Washington D.C.: Inter-American Development Bank. Hernandez, L. & Rudolph, H. (1994). Domestic factors, sustainability, and soft landing in the new wave of private capital inflows, Mimeo, The World Bank. Hodrick, R. J. & Prescott, E.C. (1997). Postwar U.S. business cycles: an empirical investigation, Journal of Money, Credit, and Banking, 29(1), 1-16. Howell, L. D. & Chaddick, B. (1994). Models of political risk for foreign investment and trade: an assessment of three approaches, Colombia Journal of World Business, 29(3), 70-91. Kaminsky, G., and Schmukler, S. L. (2002). Emerging market instability: Do sovereign ratings affect country risk and stock returns?. The World Bank Economic Review,16(2), 171-195. Kobrin, S. J. (1978). When does political instability result in increased investment risk? Colombia Journal of World Business, 13(3), 113-122. Krugman, P. (1979). A model of balance of payments crises. Journal of Money, Credit and Banking, 11(3), 311-325. Limongi, F. & Przeworski, A. (2004). Democracy and development in South America, 1946-1988, Estudio Working Paper 1994/55. Londregan, J. & Poole, H. (1990). Poverty, the coup trap and the seizure of executive power, World Politics, 92, 1-24. Moguillansky, G. (2002). Investment and financial volatility in Latin America, CEPAL Review, 77, 45-63. Mobarak, A. M. (2005). Democracy, volatility and economic development, The Review of Economics and Statistics, 87(2), 348–361 Nigh, D. (1985). The effect of political events on US direct foreign investment: a polled time series cross sectional analysis, Journal of International Business Studies, 16, 1-17. Obstfeld, M. (1986). Rational and self-fulfilling balance of payment crises. American Economic Review 76(1), 72-81. Obstfeld, M. (1994). Risk taking, global diversification and growth. American Economic Review, 84(5), 1310-1329. Oks, D. & Wijnbergen, S. (1995). Mexico after the debt crisis: is growth sustainable? Journal of Development Economics, 47(1),155-178. Olson, M. (1982). The Rise and Decline of Nations (New Haven, Conn., Yale University Press). Pesaran, M.H. & Shin, Y. (1998). Impulse response analysis in linear multivariate models. Economics Letters 58, 17–29. Perotti, R. (1996) Growth, income distribution and democracy: what the data say, Journal of Economic Growth, 1(2), 149-187. Persson, T. & Tabellini, G. (1994). Is inequality harmful for growth? American Economic Review, 84(3), 600-621. Price, S. (1995) Aggregate uncertainty, capacity utilization and manufacturing investment, Applied Economics, 27(2), 147-154. Ramey, G. & Ramey, V. A. (1995). Cross country evidence on the link between volatility and growth, American Economic Review, 85(5), 1138-1151. Rivoli, P. & Brewer, T. L. (1997). Political instability and country risk, Global Finance Journal, 8(2), 309-321. Rodrik, D. (1999). “Where did all the growth go? External shocks, social conflict, and growth collapses,” Journal of Economic Growth 4(4), 385–412. Root, F. R. & Ahmed, A. A. (1979). Empirical determinants of manufacturing direct foreign investment in developing countries, Economic Development and Cultural Change, 27(4), 751-67. Ros, J. (2003). Development Theory and The Economics of Growth, (Ann Arbor, The University of Michigan Press). Sala-i-Martin, X. (1997). I just run four million regressions, NBER Working Paper no.4186, Cambridge, MA: National Bureau of Economic Research. Schneider, F. & Frey, B. S. (1985). Economic and political determinants of foreign direct investment, World Development, 13(2), 161-175. Serven, L. (1998). Macroeconomic uncertainty and private investment in LDC: An Empirical Investigation, Mimeo, The World Bank. Senses, F. & Koyuncu, M. (2007). Socioeconomic effects of economic crises: A comparative analysis of the experiences of Indonesia, Argentina and Turkey, in: A. H. Kose, F. Senses, and E. Yeldan (Eds), Neoliberal Globalization as New Imperialism: Case Studies on Reconstruction of the Periphery Nova Science Publishers. Soares, R.R. (1999). Development, crime and punishment: accounting for the international differences in crime rates, Mimeo, University of Chicago. Taylor, L. & Vos, R. (2000). Balance of payments liberalization in Latin America: effects on growth, distribution and poverty, in: E. Ganuza, R. P. Barros, L. Taylor, R. Vos, (Eds.), Economic Liberalization, Distribution and Poverty: Latin America in the 1990s, pp.1-53 (Northampton, MA, Edward Elgar). Treasury International Capital Reporting System, Available at: http://www.ustreas.gov/tic/index.html Venieris, Y. & Gupta, D. (1986). Income distribution and sociopolitical instability as determinants of savings: A Cross-sectional Model, Journal of Political Economy, 94(4), 873-883. Weller, C. E. (2001). Financial crises after financial liberalization: exceptional circumstances or structural weakness? The Journal of Development Studies, 38(1), 98-127.
Available Versions of this Item
Volatility of short term capital flows and socio-political instability in Argentina, Mexico and Turkey. (deposited 28. Feb 2007)
- Volatility of short term capital flows and socio-political instability in developing countries: A review. (deposited 22. Jan 2008 16:20) [Currently Displayed]