Determinants of Net Capital Flows: A Quantile Regression Analysis

Abstract

We empirically investigate the determinants of net capital flows (NCF) before and after the global financial crisis 2007-08 using panel quantile regression for 47 developing economies over the period 1980-2018. We find that both push and pull factors are important determinants of NCF. In particular, push factors such as the global growth rate, the global interest rate, and the world uncertainty index are more associated with NCF in the pre-crisis period as compared to the post-crisis period. However, the estimated coefficients across the quantiles show that country-specific characteristics are more important in the post- global financial crisis period as compared to global push factors in driving NCF. This study is the first to use panel quantile regression to examine the determinants of NCF before and after the global financial crisis 2007-08, and the findings have important implications for policymakers in developing economies. Understanding the determinants of NCF is vital to designing economic policies to reduce the risks and allow developing countries to gain the maximum benefits associated with NCF.