The Composition of Capital Flows: Is South Africa Different?
IMF Working Papers, March 1, 2005
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Bibliographic details
- Authors: Norbert Funke, Faisal Ahmed, Rabah Arezki
- Published: March 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451860597.001
Summary and research objective
- Over the past decade, South Africa has attracted relatively little foreign direct investment (FDI), but considerable amounts of portfolio inflows.
- The paper has two objectives:
- To identify the determinants of the level and composition of capital flows to emerging markets.
- To draw policy conclusions for South Africa.
Methodology
- Empirical approach: estimate a dynamic panel for up to 81 emerging markets using GMM (Generalized Method of Moments) techniques.
- Sample coverage: up to 81 emerging markets.
Key findings
- Further trade liberalization would increase the share of FDI.
- Further capital control liberalization would increase the share of FDI.
- A reduction in exchange rate volatility would affect the composition of capital flows in favor of FDI.
Policy implications for South Africa
- Policies that further liberalize trade and capital controls are associated with higher FDI shares.
- Policies that reduce exchange rate volatility can shift capital inflows toward FDI and away from portfolio inflows.
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