IMF Working Papers

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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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. 11/67

Subject:

Bulgaria Capital flows Central and Eastern Europe Consumption Czech Republic Emerging markets Estonia Hungary Latvia Lithuania Poland Romania

Frequency:

Biannually