Determinants of International Capital Flows in Emerging Countries with Emphasis on Financial Globalization

Document Type : Original Article

Authors

1 Assistant Professor, Department of Economics, Faculty of Economics and Political Science, Shahid Beheshti University, Tehran, Iran.

2 Ph.D Student in Economics, Faculty of Economics and Political Science, Shahid Beheshti University, Tehran, Iran.

Abstract

This article examines the determinants of international capital flows with an emphasis on financial globalization in emerging countries during 1985-2013. In addition, by entering the interactive variable of institutions' quality with financial globalization, the simultaneous effect of institutions' quality and financial globalization on international capital flows has been evaluated. For this purpose, two-stage generalized moment estimator has been used. The results show that financial globalization increases capital flows in countries that have high-quality institutions and political stability. But in countries with poor quality institutions and political instability, it does not increase capital flows or even decreases them. Also, based on the results, there is a threshold level for the quality of institutions, before reaching it, financial globalization causes a decrease in capital flows, and when the quality of institutions reaches this threshold level, financial globalization causes an increase in capital flows. In addition, among the selected emerging countries, only Hungary, Czech Republic, Slovakia, Chile, Malaysia, Poland, Bulgaria, Lithuania, Mexico, Oman, Estonia and Latvia have been able to reach this threshold level. Considering that the quality of institutions in most emerging countries is below the threshold, these countries should improve the quality of institutions and establish political stability in their country before financial globalization.

Keywords

References

References
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Public Sector Economics Studies
Volume 1, Issue 1
November 2022
Pages 85-104

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History

  • Receive Date: 19 February 2022
  • Revise Date: 28 August 2022
  • Accept Date: 03 September 2022

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