What drives the capital flows into BRICS economies?

Understanding what drives the capital flows has important policy implications for countries in managing the direction and magnitude of such flows. This paper empirically investigates the main drivers of capital flows into the fast‐growing BRICS countries, in the backdrop of their growing inward capi...

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Bibliographic Details
Published in:World economy 2018-02, Vol.41 (2), p.519-549
Main Authors: Swamy, Vighneswara, Narayanamurthy, Vijayakumar
Format: Article
Language:English
Subjects:
BRICS
Business
Capital
Capital movement
Causality
Credit ratings
Economic analysis
economic growth
Economic models
foreign direct investment
Freedoms
granger causality
Infrastructure
International finance
panel data
Ratings & rankings
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Summary:Understanding what drives the capital flows has important policy implications for countries in managing the direction and magnitude of such flows. This paper empirically investigates the main drivers of capital flows into the fast‐growing BRICS countries, in the backdrop of their growing inward capital flows. Employing a fully balanced panel for the period 1995–2015, we focus on, among others, the hitherto commonly untested variables: sovereign credit ratings, economic freedom and ease of doing business ranking of these countries. In searching for the relevant interaction and causality among the drivers of capital flows, we employ the panel Granger causality test to arrive at the policy implications. The results suggest that market size is a significant driver of capital flows. In addition to infrastructure, economic freedom in the host countries, ease of doing business ranking and sovereign credit ratings are the main drivers in the long‐run growth of capital flows.
ISSN:0378-5920
1467-9701
DOI:10.1111/twec.12606