Changing patterns in capital flows

FDI vs Non-FDI capital flows

Following the global financial crisis, the growth of cross-border holdings of financial instruments relative to GDP growth has come to a halt. Lane and Milesi Ferretti attribute this to a) weaker capital flows to and from advanced economies; b) increased weight of less-financially-integrated emerging and developing economies in global GDP.

FDI positions have continued to expand: for financial centers this expansion is due to multinational companies while for the emerging economies China plays a big role in explaining the increase in inward and outward FDI.
International Financial Integration in the Aftermath of the Global Financial Crisis
Authors: Philip R. Lane and Gian Maria Milesi-Ferretti
From: IMF

FDI outflows from emerging markets

As FDI outflows from emerging countries have continued to expand and play a more important role in the global economy Eichengreen, Gupta and Masetti find that they have also become significantly volatile. In the most recent five year period the countries that were responsible for this increase in volatility were Chile, Malaysia, Hungary and the Russian Federation – not China.

Are Capital Flows Fickle? Increasingly? And Does the Answer Still Depend on Type?
Authors: Barry Eichengreen, Poonam Gupta, Oliver Masetti
From: World Bank

How do emerging markets manage capital flows

Ghosh, Ostry and Qureshi examine whether and how emerging markets have sought to manage capital inflows after the Global Financial crisis. Contrary to recent research which indicates that emerging markets are either not responding to increased capital inflows or are doing so in the wrong direction, Ghosh and al. find that not only policymakers in these countries have responded using various tools but that there is a correspondence between these tools and the nature of the risks. Interestingly, the prescription to tighten fiscal policy was the least used.
Policy responses to capital flows in emerging markets: Some new evidence
Authors: Atish R. Ghosh, Jonathan D. Ostry, Mahvash S. Qureshi
From: IMF