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Article
Publication date: 7 July 2020

Yu Ma, Jun Shi and Qiang Ji

This paper empirically tests the impact of capital sudden stops on the economic growth using quarterly data from 49 emerging economies.

Abstract

Purpose

This paper empirically tests the impact of capital sudden stops on the economic growth using quarterly data from 49 emerging economies.

Design/methodology/approach

This paper applies the GMM dynamic panel estimation method.

Findings

The results show that capital sudden stops can significantly inhibit the economic growth of emerging economies. It was also found that the inhibiting effect on low-savings-rate economies is greater, but less on high-savings-rate economies. In addition, this paper examined the impact of different types of capital sudden stops on economic growth in emerging economies. The results reveal that the impact of sudden stops of direct investment is not significant.

Originality/value

Little existing research considers the impact of capital sudden stops through the perspective of savings rate differences. Based on our research using the GMM model, we argue that capital sudden stops will lead to a decline in investment kinetic energy in emerging economies, and therefore, a decline in economic growth. There are also few studies on the economic effects of capital sudden stops. And the time series model is generally used in a single economy. This paper, however, uses the data from 49 emerging economies and takes the panel approach to more comprehensively study the capital sudden stops of emerging economies.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 6 November 2017

Levan Efremidze, Sungsoo Kim, Ozan Sula and Thomas D. Willett

This paper aims to investigate the relationship between capital flow surges, reversals and sudden stops.

Abstract

Purpose

This paper aims to investigate the relationship between capital flow surges, reversals and sudden stops.

Design/methodology/approach

Emphasizing the importance of looking at the behavior of domestic as well as foreign capital flows, the authors distinguish sudden stops from capital flow reversals by attributing the former to foreign capital flows only.

Findings

It is found that, despite the large differences in the number of surges identified by several different measures in the literature, a majority of surges do end in reversals of some type. The percentages tend to be slightly over half for surges in net capital flows, but on average, 70 per cent of gross surges end in sudden stops. Furthermore, contrary to popular belief, approximately half of sudden stops and net capital flow reversals are not preceded by surges. It is also found that surges that persist longer are more likely to turn into sudden stops and reversals.

Research limitations/implications

The authors find substantial empirical differences in the characteristics of sudden stops (based on gross foreign flows) and reversals (based on net flows).

Practical implications

Large inflows of financial capital are not always a strong indicator that a country’s economic policies will continue to provide stability in the future. They may signal an increase rather than reduction in the risk of future instability.

Originality/value

This study focuses on an issue that has been less explored to date, the relationship between capital flow surges, reversals and sudden stops. The authors distinguish, redefine and document differences among capital flow reversals and sudden stops. Duration of surges is related to the likelihood of having reversals and sudden stops.

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Article
Publication date: 8 November 2011

Levan Efremidze, Samuel M. Schreyer and Ozan Sula

The purpose of this paper is to examine empirical characteristics of two commonly mentioned expressions of international financial crisis, “sudden stops” and currency crises.

Abstract

Purpose

The purpose of this paper is to examine empirical characteristics of two commonly mentioned expressions of international financial crisis, “sudden stops” and currency crises.

Design/methodology/approach

Sudden stop and currency crisis events are identified and empirical regularities among them are analyzed based on the annual data of 25 emerging market countries from 1990 to 2003.

Findings

Puzzlingly, these two seemingly close expressions of crises overlap less than 50 percent of the time and sudden stops more frequently precede than follow currency crises. Also the two different sudden stop measures are not strongly correlated with each other.

Research limitations/implications

This shows that it can make a great deal of difference what measure is used and suggests that studies in this area should be sure to check the robustness of their results to different measures.

Practical implications

The authors think that the proper analysis should focus on how to use these different measures to understand the nature of the crises. Thus, sudden stop and currency crisis measures should be used as complements, rather than substitutes.

Social implications

The alarming frequency of the emerging market crises during the last three decades has motivated a large volume of theoretical and empirical literature on the subject. The paper's results advance understanding of these events.

Originality/value

A large body of studies on currency crises coexists with a growing literature on sudden stops yet a majority of the studies that investigate either one of these phenomena do not mention the other. The paper adds value by investigating empirical relationships between them.

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Article
Publication date: 14 May 2018

Rogelio V. Mercado Jr

The purpose of this paper is to consider the transition of surge episodes to stop episodes and differentiates between two types of surges, namely, surges that end in stops

Abstract

Purpose

The purpose of this paper is to consider the transition of surge episodes to stop episodes and differentiates between two types of surges, namely, surges that end in stops and surges that end in normal episodes.

Design/methodology/approach

Previous studies show that surges end in output contractions, crises, and reversals of capital inflows. However, when one looks closely at the data, more than half of surges end in normal episodes at least four quarters following the last surge quarter.

Findings

The results show the varying significance of global and domestic factors correlated with the occurrence of surges leading to stops and the size of gross inflows during these two types of surges.

Originality/value

The findings highlight the importance of differentiating between these two types of surges as it leaves scope for policy design in safeguarding financial stability amidst surging capital inflows.

Details

Journal of Economic Studies, vol. 45 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

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Article
Publication date: 31 December 2004

Miguel Urrutia

Describes Colombia’s experience over the last decade, during which the country benefited from discovery of a large oil deposit and from a general increase in capital flows…

Abstract

Describes Colombia’s experience over the last decade, during which the country benefited from discovery of a large oil deposit and from a general increase in capital flows to Latin America: the effect was to increase spending by government and private sector alike, with a resulting doubling of national debt, so that a sudden cessation of foreign capital inflow led to disastrous effects on growth and employment. Relates this to the continuing threat of irregular armies financed by illegal drugs, and assesses the intimidating effect of this on macroeconomic policy making. Argues that increased violence and armed opposition to a legitimate government destroys fiscal and human capital, creates serious disincentives to growth‐enhancing local and foreign investment, and impedes macroeconomic reforms which are needed to handle events like a sudden stop in capital flows or deterioration in the terms of trade.

Details

Journal of Financial Crime, vol. 12 no. 1
Type: Research Article
ISSN: 1359-0790

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Book part
Publication date: 25 July 2019

Perry Warjiyo and Solikin M. Juhro

Abstract

Details

Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Abstract

Details

Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

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Book part
Publication date: 25 June 2016

Loly Aylú Gaitán-Guerrero and Charles Alberto Muller Sanchez

The purpose of this chapter is to explore the possible relation between public policy measures, particularly relating to currency exchange rates, capital flow mechanisms…

Abstract

Purpose

The purpose of this chapter is to explore the possible relation between public policy measures, particularly relating to currency exchange rates, capital flow mechanisms and cross-border insolvency by describing the current state of insolvency regulation in Latin America and some cases that exemplify this public-private dynamic.

Methodology/approach

The first part of the chapter is based on literature review and content analysis to show the current situation of the regulation of insolvency in Latin America and the evolution of policies shaping the flow of capital and the exchange rates. The second part illustrates the proceedings in selected countries, particularly for Colombia and Venezuela.

Findings

The analysis led to the finding that some countries’ policy mechanisms such as in the case of Venezuela might lead to a problem regarding national companies involved in an insolvency proceeding, particularly when the company alleges that public policy in force have changed circumstances leading to the impossibility of paying foreign-located liabilities.

Research limitations/implications

The chapter is based largely on literature review and available data, public legal documents and cases relating public policy and cross-border insolvency; however, insolvency proceedings are not of public domain; thus, there is a large amount of information related with the mentioned cases that remain undisclosed.

Originality/value

This chapter provides a theoretical and practical perspective to analyze cross-border insolvency from a local regulatory framework. It also demonstrates the possible link between public policy and cross-border insolvency.

Details

Dead Firms: Causes and Effects of Cross-border Corporate Insolvency
Type: Book
ISBN: 978-1-78635-313-9

Keywords

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Book part
Publication date: 7 January 2016

Alex W. A. Palludeto and Saulo C. Abouchedid

This paper reassesses the center-periphery relationship in light of recent developments in the international monetary system and the currency hierarchy in a geopolitical…

Abstract

This paper reassesses the center-periphery relationship in light of recent developments in the international monetary system and the currency hierarchy in a geopolitical economy framework. The center-periphery relationship has historically been examined in relation to the international division of labor, the pace and diffusion of technical progress associated with it, and the pattern of consumption it embodies. As conceived by structuralists and dependentistas, it is not seen as the result of the uneven and combined development of capitalism: it does not take into account the struggle between the dominant States (center), which want to reproduce the current order and the contender States (periphery) which aim to accelerate capitalist development to reduce the unevenness, and even to undermine the imperial project of dominant states. In a geopolitical economy framework, a powerful obstacle peripheral countries face in their efforts at combined development is the international monetary system, something that the theorists of the center-periphery relationship have perhaps overlooked. Because of its subordinate position in the currency hierarchy, the periphery is subject to greater external vulnerability, greater instability of exchange and interest rates, and as a result, enjoys a more restricted policy space. In this sense, the chapter shows that, beyond macroeconomic policies, the currency hierarchy in a context of high capital mobility limits a range of developmental policies of peripheral countries, reinforcing the unevenness of world economy and constraining combined development.

Details

Analytical Gains of Geopolitical Economy
Type: Book
ISBN: 978-1-78560-336-5

Keywords

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Book part
Publication date: 29 December 2016

Takashi Matsuki, Kimiko Sugimoto and Yushi Yoshida

We examine how the degree of regional financial integration in African stock markets has evolved over the last eleven years. Despite increasing regional economic…

Abstract

We examine how the degree of regional financial integration in African stock markets has evolved over the last eleven years. Despite increasing regional economic cooperation, the process of stock market integration has been slow. To facilitate growth via developed financial markets but keep financial stability risk at a minimum, further regional integration should be promoted, and mild capital controls on non-African investors may be necessary. A Diebold-Yilmaz spillover analysis is applied to ten African stock markets for the period between August 2004 and January 2015. We examine spillovers among four regions and among individual countries. Regional integration, as measured by total spillovers in Africa, is increasing but remains very low. These spillovers were temporarily heightened during the global financial crisis. Cross-regional spillovers are high between Northern and Southern Africa. Asymmetric capital controls on African and non-African investors must be considered to foster further regional integration and to mitigate financial stability risk. This is one of the few studies to address the construction of the future architecture of regionally integrated stock markets in emerging countries.

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