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

_IMF Working Papers, March 1, 2011_

## Source details

**Canonical URL:** [Capital Flows to EU New Member States: Does Sector Destination Matter?](https://www.imf.org/en/publications/wp/issues/2016/12/31/capital-flows-to-eu-new-member-states-does-sector-destination-matter-24752)

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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

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### 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.

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## Content in this bundle

- **Appendix I.**
  - [Appendix I. (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp1167.pdf.md){rel="alternate" type="text/markdown"}
  - [Appendix I. (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp1167.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/capital-flows-to-eu-new-member-states-does-sector-destination-matter-24752_