Thesis (M.Sc.)-Cairo nivsersity,2021..

Bibliography: p. 110-121.

This study examines private capital inflows into developing countries focusing on three main research objectives. (1) what determine market access?, (2) what are the dynamics of private capital inflows episodes of surges and sudden stops?; and policy responses to Large private capital inflow?
This study examines at first factors that affect developing countries access to international capital markets for a sample of 122 developing countries over the period of 1990-2019, differentiating between pull-push as well as short- and long-run determinants. The objective is to examine the relative importance of domestic and global factors in driving capital inflows, and their dynamics in determining market access, and whether there is a regional effect on financial flows at large in order to explore why some countries have been unsuccessful in accessing international capital markets relying heavily on other sources of finance and the effect of loss of market access episodes on the macroeconomic policies of developing countries. Our results suggest that countries with better macroeconomic prospects maintained better access to longer-term capital markets. Our analysis also suggests regional effects in international capital market access. In addition, trade openness and GDP per capita, which measures links of a given country with the world and vulnerability, respectively, have a different impact on developing regions and that domestic factors affect lower income countries the most. This imply that domestic policies influence to an extent the private capital inflows and not the external factors which in turn lend evidence to the importance of domestic policies in driving private capital inflows into developing regions.
Then we move to the second objective which is to explore the key drivers as well as consequences of episodes of both, large private capital inflows and sudden stops. at first we differentiate between fluctuations and episodes in private capital inflows. Then, we assess the main consequences of these episodes. We propose a formal methodology for identifying periods of extreme capital flows in developing countries by means of Markov Regime-switching model using quarterly data on net private flows for a sample of 36 emerging market economies over a period of 30 years from 1990 to 2019. The model was able to identify the states distinctly with the means of each state being statistically significant for each country in the sample. Subsequently, we conduct a dynamic analysis of the effects of the surges and stops separately on countries’ GDP growth using panel event estimation with lags and leads. The results suggests that surges in net capital flows have a contractionary effect on countries’ output in the medium term. However, there is no robust evidence for having any statistically significant effect on output for sudden stops, though the point estimates are found to be negative implying a contractionary effect on output. The findings in this paper contribute to the debate of costs and benefits of imposing capital controls for developing countries. Thus, it contributes to the body of literature that focuses on the episodes of private capital flows and the absorptive capacities of developing countries to the disturbances created by these fluctuations. It is extremely important for policy makers in developing countries to understand how private capital flows may respond to episodes of large private capital inflows and/ or sudden stops in a given country and/or region.
Turning to the third and last objective which is to explore capital mobility under financial account liberalisation and /or controls in developing countries, and then assess the effectiveness of policy responses to the external shocks that transmitted rapidly to domestic financial systems of highly integrated countries amongst developing regions. Against this background, we examine whether external shocks to private capital flow that affect macroeconomic variables affect developing countries adopting absorptive policy measures differently. That is, we attempt to analyse whether policy responses to fluctuations in private capital inflows including capital account liberalization insolate developing countries against external shocks. The chapter at first examines the transmission mechanism and the macroeconomic consequences of these flows into the top recipient developing economies. Then, we assess the policy responses to fluctuations in private capital flows on key macroeconomic aggregates by means of VAR model differentiating between two sets of countries (capital account openness and controls) We utilize crisis incidences to measure the short-run effects of private capital inflow shocks using a variance decomposition and impulse response analyses for a sub-sample of countries.. The results indicate that a negative shock to domestic fundamentals would decrease private capital inflows, while a positive shock effect is ambiguous. On the contrary, external shocks tend to affect developing countries in the same way. Cross-country comparisons indicate that countries that were less vulnerable to the crisis tended to be those that had avoided real appreciation and imposed a tight fiscal policy during the inflow period, thereby absorbing a larger share of investment and achieving more rapid growth than they would have done under different policies. Thus the policy mix employed in the effort to combat overheating seems to matter from the perspective of vulnerability as well. The results imply that regional effects matters suggesting that policies that have been successful in some regions may not be equally successful in others.
This study examines private capital inflows into developing countries focusing on three main research objectives. (1) what determine market access?, (2) what are the dynamics of private capital inflows episodes of surges and sudden stops?; and policy responses to Large private capital inflow?
This study examines at first factors that affect developing countries access to international capital markets for a sample of 122 developing countries over the period of 1990-2019, differentiating between pull-push as well as short- and long-run determinants. The objective is to examine the relative importance of domestic and global factors in driving capital inflows, and their dynamics in determining market access, and whether there is a regional effect on financial flows at large in order to explore why some countries have been unsuccessful in accessing international capital markets relying heavily on other sources of finance and the effect of loss of market access episodes on the macroeconomic policies of developing countries. Our results suggest that countries with better macroeconomic prospects maintained better access to longer-term capital markets. Our analysis also suggests regional effects in international capital market access. In addition, trade openness and GDP per capita, which measures links of a given country with the world and vulnerability, respectively, have a different impact on developing regions and that domestic factors affect lower income countries the most. This imply that domestic policies influence to an extent the private capital inflows and not the external factors which in turn lend evidence to the importance of domestic policies in driving private capital inflows into developing regions.
Then we move to the second objective which is to explore the key drivers as well as consequences of episodes of both, large private capital inflows and sudden stops. at first we differentiate between fluctuations and episodes in private capital inflows. Then, we assess the main consequences of these episodes. We propose a formal methodology for identifying periods of extreme capital flows in developing countries by means of Markov Regime-switching model using quarterly data on net private flows for a sample of 36 emerging market economies over a period of 30 years from 1990 to 2019. The model was able to identify the states distinctly with the means of each state being statistically significant for each country in the sample. Subsequently, we conduct a dynamic analysis of the effects of the surges and stops separately on countries’ GDP growth using panel event estimation with lags and leads. The results suggests that surges in net capital flows have a contractionary effect on countries’ output in the medium term. However, there is no robust evidence for having any statistically significant effect on output for sudden stops, though the point estimates are found to be negative implying a contractionary effect on output. The findings in this paper contribute to the debate of costs and benefits of imposing capital controls for developing countries. Thus, it contributes to the body of literature that focuses on the episodes of private capital flows and the absorptive capacities of developing countries to the disturbances created by these fluctuations. It is extremely important for policy makers in developing countries to understand how private capital flows may respond to episodes of large private capital inflows and/ or sudden stops in a given country and/or region.
Turning to the third and last objective which is to explore capital mobility under financial account liberalisation and /or controls in developing countries, and then assess the effectiveness of policy responses to the external shocks that transmitted rapidly to domestic financial systems of highly integrated countries amongst developing regions. Against this background, we examine whether external shocks to private capital flow that affect macroeconomic variables affect developing countries adopting absorptive policy measures differently. That is, we attempt to analyse whether policy responses to fluctuations in private capital inflows including capital account liberalization insolate developing countries against external shocks. The chapter at first examines the transmission mechanism and the macroeconomic consequences of these flows into the top recipient developing economies. Then, we assess the policy responses to fluctuations in private capital flows on key macroeconomic aggregates by means of VAR model differentiating between two sets of countries (capital account openness and controls) We utilize crisis incidences to measure the short-run effects of private capital inflow shocks using a variance decomposition and impulse response analyses for a sub-sample of countries.. The results indicate that a negative shock to domestic fundamentals would decrease private capital inflows, while a positive shock effect is ambiguous. On the contrary, external shocks tend to affect developing countries in the same way. Cross-country comparisons indicate that countries that were less vulnerable to the crisis tended to be those that had avoided real appreciation and imposed a tight fiscal policy during the inflow period, thereby absorbing a larger share of investment and achieving more rapid growth than they would have done under different policies. Thus the policy mix employed in the effort to combat overheating seems to matter from the perspective of vulnerability as well. The results imply that regional effects matters suggesting that policies that have been successful in some regions may not be equally successful in others.

وتشير المقارنات بين الدول إلى أن الدول التي كانت أقل عرضة للأزمة كانت تميل إلى أن تكون هي تلك التي تجنبت التقدير الحقيقي وفرضت سياسة مالية صارمة خلال فترة التدفق، وبالتالي استيعاب حصة أكبر من الاستثمار وتحقيق نمو أسرع مما كانت ستحصل عليه ولكن ذلك تم بموجب سياسات مختلفة. وبالتالي ، يبدو أن مزيج السياسات المستخدم في الجهود المبذولة لمكافحة ارتفاع مؤشرات الاقتصاد الكلي مهم من منظور الضعف أيضًا. وتشير النتائج إلى أن التأثيرات الإقليمية مهمة مما يشير إلى أن السياسات التي نجحت في بعض المناطق قد لا تكون ناجحة بنفس القدر في مناطق أخرى.

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Text in English and abstract in Arabic & English.