Capital Flows to EU New Member States: Does Sector Destination Matter?
IMF Working Papers, March 1, 2011
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- Capital Flows to EU New Member States: Does Sector Destination Matter?
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Bibliographic details
- Authors: Pritha Mitra
- Published: March 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455228034.001
Summary and key findings
- The recent boom-bust episode in Emerging Europe was largely the product of surges and sudden stops in capital inflows.
- The 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.
Policy implications and recommendations
- Focus policy efforts on directing capital inflows toward economic sectors that minimize large swings in GDP.
- Monitor and manage surges and sudden stops in capital inflows to mitigate boom-bust dynamics, with particular attention to real estate sector inflows given their outsized impact on GDP swings.
- Policy design should account for sectoral destination of capital flows independently of exchange rate or fiscal policy stance, since real estate inflows exert stronger effects irrespective of those policies.
Data, scope, and methodology notes
- Geography: EU New Member States (Emerging Europe).
- Sectoral focus: real estate versus other sectors.
- Main outcome: impact of capital flows on GDP growth and swings in GDP.
- Subject tags from source: Capital flows, Capital inflows, Consumption, Credit, Foreign direct investment.
- Keywords from source: Bulgaria, FDI, GDP, GDP growth, WP.
Content in this bundle
- Appendix I.