Volatility of short term capital flows, financial anarchy and private investment in emerging markets

Demir, Firat (2006): Volatility of short term capital flows, financial anarchy and private investment in emerging markets.

Abstract

Using micro-level panel data, the paper analyses the impacts of short-term capital flow volatility on new fixed investment spending of publicly traded real sector firms in three major emerging markets that are Argentina, Mexico and Turkey. The empirical results including comprehensive sensitivity tests suggest that increasing volatility of capital inflows has an economically and statistically significant negative effect on new investment spending of private firms. Accordingly, a 10 per cent increase in capital flow volatility reduces fixed investment spending in the range of 1-1.7, 2.3-15.1, and 1 per cent in Argentina, Mexico and Turkey respectively.

• Item Type: MPRA Paper
• Institution: University of Oklahoma
• Language: English
• Keywords: Capital Flow Volatility; Macroeconomic Uncertainty; Private Investment; Financial Liberalisation
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements

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