A major theme in the empirical literature is whether country-specific ‘pull’ or external ‘push’ factors drive international capital flows. In this paper we show that pull-push interactions matter: the response of international investors to country-specific developments depends on global volatility/liquidity stress conditions. We model asset-trade behaviour of investors: with limited information, strong institutional quality ‘pulls’ asset demand; mounting tensions in global markets amplify portfolio adjustments. We derive an empirically testable equation for cross-border bank flows to emerging economies (EMEs) and focus on pull-push interactions that trigger financial vulnerabilities. We find that global volatility amplifies demand for institutional quality, prior to the recent crisis, implying that EMEs with weak institutional settings are exposed to sharp capital retrenchments. In the aftermath of the crisis, the liquidity easing in advanced economies drives down concerns for EMEs’ developments, boosting flows and challenging EMEs’ ability to use capital controls to mitigate unbridled flows.

Distance and beyond. What drives financial fllows to emerging economies? / Cavallaro, Eleonora; Cutrini, Eleonora. - In: ECONOMIC MODELLING. - ISSN 0264-9993. - STAMPA. - 81:(2019), pp. 533-550. [10.1016/j.econmod.2018.06.001]

Distance and beyond. What drives financial fllows to emerging economies?

Cavallaro, Eleonora
;
2019

Abstract

A major theme in the empirical literature is whether country-specific ‘pull’ or external ‘push’ factors drive international capital flows. In this paper we show that pull-push interactions matter: the response of international investors to country-specific developments depends on global volatility/liquidity stress conditions. We model asset-trade behaviour of investors: with limited information, strong institutional quality ‘pulls’ asset demand; mounting tensions in global markets amplify portfolio adjustments. We derive an empirically testable equation for cross-border bank flows to emerging economies (EMEs) and focus on pull-push interactions that trigger financial vulnerabilities. We find that global volatility amplifies demand for institutional quality, prior to the recent crisis, implying that EMEs with weak institutional settings are exposed to sharp capital retrenchments. In the aftermath of the crisis, the liquidity easing in advanced economies drives down concerns for EMEs’ developments, boosting flows and challenging EMEs’ ability to use capital controls to mitigate unbridled flows.
2019
asset trade; international financial flows; pull-push interaction; distance; institutional quality; emerging markets; capital controls
01 Pubblicazione su rivista::01a Articolo in rivista
Distance and beyond. What drives financial fllows to emerging economies? / Cavallaro, Eleonora; Cutrini, Eleonora. - In: ECONOMIC MODELLING. - ISSN 0264-9993. - STAMPA. - 81:(2019), pp. 533-550. [10.1016/j.econmod.2018.06.001]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1116872
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