Working Paper: CEPR ID: DP16749
Authors: Ergys Islamaj; M. Ayhan Kose
Abstract: Cross-border capital flows are expected to lead to increased international risk sharing by facilitating borrowing and lending in global financial markets. This paper examines risk-sharing outcomes of various types of capital flows (foreign direct investment, portfolio equity, debt, remittance, and aid flows) in a large sample of emerging market and developing economies. The results suggest that remittances and aid flows are associated with increased international risk sharing. Other types of capital flows are not consistently correlated with better risk-sharing outcomes. These findings are robust to the use of different econometric specifications, country-specific characteristics, and other controls.
Keywords: capital flows; remittances; aid flows; international risk sharing
JEL Codes: E1; F02; F4; G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| remittances (F24) | improved international risk sharing outcomes (F30) |
| aid flows (F35) | improved international risk sharing outcomes (F30) |
| remittances (F24) | sensitivity of consumption growth to output growth (E20) |
| aid flows (F35) | sensitivity of consumption growth to output growth (E20) |
| foreign direct investment (FDI) (F23) | risk sharing (D16) |
| portfolio equity (G11) | risk sharing (D16) |