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Large capital inflows, sectoral allocation, and economic performance

Benigno, Gianluca, Converse, Nathan and Fornaro, Luca (2015) Large capital inflows, sectoral allocation, and economic performance. Journal of International Money and Finance, 55. pp. 60-87. ISSN 0261-5606

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Identification Number: 10.1016/j.jimonfin.2015.02.015

Abstract

This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover during episodes of large capital inflows, capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/02615...
Additional Information: © 2015 Elsevier B.V
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
JEL classification: F - International Economics > F3 - International Finance > F31 - Foreign Exchange
F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
Sets: Departments > Economics
Date Deposited: 21 Jul 2015 10:37
Last Modified: 20 Aug 2019 18:19
Projects: ES/I024174/1, ECO2011-23192
Funders: Economic and Social Research Council, Ministry of Science and Innovation (Spain)
URI: http://eprints.lse.ac.uk/id/eprint/62776

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