Working Paper

Globalization and the Increasing Correlation between Capital Inflows and Outflows


Abstract: The correlation between capital inflows and outflows has increased substantially over time in a sample of 128 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 14 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows and outflows is consistent with the data.

JEL Classification: F4; F3;

https://doi.org/10.24149/gwp323

Access Documents

File(s): File format is application/pdf https://www.dallasfed.org/institute/~/media/documents/institute/wpapers/2017/0323.pdf
Description: Full text

Authors

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2017-08-01

Number: 323

Pages: 34 pages