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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Globalization and the Increasing Correlation between Capital Inflows and Outflows
J. Scott Davis
Eric Van Wincoop
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.


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J. Scott Davis & Eric Van Wincoop, Globalization and the Increasing Correlation between Capital Inflows and Outflows, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 323, 01 Aug 2017.
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DOI: 10.24149/gwp323
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