Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks.
Low-income countries (LIDCs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to LIDCs this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows in LIDCs. Concentrating on LIDCs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LIDCs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows in LIDCs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LIDCs are on average much lower than those to EMs, we show that the LIDC top quartile gross non-FDI inflow is comparable to the EM median inflow and converging to the EM top quartile inflow.
Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks.
Low-income countries (LIDCs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to LIDCs this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows in LIDCs. Concentrating on LIDCs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LIDCs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows in LIDCs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LIDCs are on average much lower than those to EMs, we show that the LIDC top quartile gross non-FDI inflow is comparable to the EM median inflow and converging to the EM top quartile inflow.
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