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Development threshold, capital flows, and financial turbulence

Ding, Ding and Jinjarak, Yothin (2012) 'Development threshold, capital flows, and financial turbulence.' North American Journal of Economics and Finance, 23 (3). pp. 365-385.

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Abstract

We study capital flows in a panel of 130 countries, and derive the implications for the observed patterns of capital flows and capital controls before and into the crisis of 2008–11. We find that the size of capital flows is positively correlated with country's income level. In addition, capital flight has a non-linear relationship with the income level. Using the Hansen threshold estimation, we identify a three-stage threshold effect: for low-income countries (GDP per capita below US$ 3,000), capital flight increases as the income level rises; and only after the economy passes a threshold level (GDP per capita above US$ 5,000), capital flight declines with income. We conclude with a case study of Brazil and Korea, observing that the decisions to implement capital control measures tend to be pushed around by the feedbacks among economic growth, currency appreciation, and the global financial conditions.

Item Type: Articles
SOAS Departments & Centres: Faculty of Law and Social Sciences > Department of Financial and Management Studies
Depositing User: Yothin Jinjarak
Date Deposited: 03 Oct 2012 10:51
URI: http://eprints.soas.ac.uk/id/eprint/14269

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