Capital Flows to EU New Member States: Does Sector Destination Matter?

Author/Editor:

Pritha Mitra

Publication Date:

March 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The recent boom-bust episode in Emerging Europe was largely the product of surges and sudden stops in capital inflows. This paper empirically argues that the sectors into which capital flows determines their impact on GDP growth. Applying data from EU New Member States, it is found that capital flows into real estate have a greater impact on swings in GDP than other sectors, irrespective of a country's exchange rate or fiscal policy. Consequently, as new waves of capital inflows spread to emerging markets, policies may usefully focus on supporting capital inflows towards economic sectors that minimize large swings in GDP.

Series:

Working Paper No. 2011/067

Subject:

Capital flows Capital inflows Consumption Credit Foreign direct investment

Frequency:

Biannually

English

Publication Date:

March 1, 2011

ISBN/ISSN:

9781455228034/1018-5941

Stock No:

WPIEA2011067

Pages:

27

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