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Globalization and the increasing correlation between capital inflows and outflows

Author

Listed:
  • Davis, J. Scott
  • Van Wincoop, Eric
Abstract
The correlation between capital inflows and outflows has increased substantially over time in a sample of 127 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 8 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows and outflows is consistent with the data.

Suggested Citation

  • Davis, J. Scott & Van Wincoop, Eric, 2018. "Globalization and the increasing correlation between capital inflows and outflows," Journal of Monetary Economics, Elsevier, vol. 100(C), pages 83-100.
    • Handle: RePEc:eee:moneco:v:100:y:2018:i:c:p:83-100
    DOI: 10.1016/j.jmoneco.2018.07.009
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    More about this item

    Keywords

    Capital inflows and outflows; Financial globalization; Trade globalization;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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