IMF Working Papers

What Moves Capital to Transition Economies?

ByNada Mora, Ratna Sahay, Jeromin Zettelmeyer, Pietro Garibaldi

April 1, 2002

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Nada Mora, Ratna Sahay, Jeromin Zettelmeyer, and Pietro Garibaldi. "What Moves Capital to Transition Economies?", IMF Working Papers 2002, 064 (2002), accessed 12/6/2025, https://doi.org/10.5089/9781451848571.001

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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

Between 1991 and 1999, capital flows to 25 transition economies in Europe and the former Soviet Union differed widely in terms of overall levels and the share and composition of private flows. With some exceptions (notably Russia), the main form of private inflows was foreign direct investment. Portfolio investment was volatile and concentrated in a handful of countries. Regressions show that direct investment can be well explained in terms of economic fundamentals, whereas the presence of a financial market infrastructure and a property-rights indicator are the only explanatory variables that seem to have had a robust effect on portfolio investment.

Subject: Balance of payments, Capital flows, Capital inflows, Financial markets, Foreign direct investment, Portfolio investment, Securities markets

Keywords: Baltics, capital flows, Capital inflows, Central and Eastern Europe, direct investment, Europe, explanatory variables, foreign direct investment, index of portfolio investment restriction, inflows to Russia, investment decision, investment flow, inward portfolio investment flow, net portfolio investment, portfolio investment, portfolio investment recipient, portfolio investment restriction, portfolio investment restrictions index, restrictions index, Securities markets, Transition economies, WP

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