• 유통과학연구
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• 제14권12호
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• pp.79-87
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• 2016

Purpose - Since 1990, the sudden stop in capital flows has caused the economic crisis. The purpose of this research is to suggest the policy measures to mitigate the risk of the sudden stop in capital flows. To this end, we examine the theoretical framework and analyze the case study for countries which are faced with the sudden stop. Also we examine the structural problems of the foreign exchange market in Korea and derive the policy implications to prevent the sudden stop. Research design, data, and methodology - The criteria of whether the sudden stop in capital flows occurs are based upon Calvo et al. (2008). In case the proxy variable for the balance of capital account decreases from the average by over twice standard deviation, we determine that the sudden stop occurs for that country. The sample period is from January 1990 to December 2008, as in Calvo (2014). The sample countries are 17 developed countries and 19 emerging market countries, which are different from those of the previous papers as Agosin and Huaita (2012), and Calvo (2014). When the exchange market pressure index(EMPI) is deviated from the average by over three times standard deviation, we determine that the foreign exchange market is unstable for that country. Results - We find that the characteristics of the sudden stop in capital flows are the bunching or contagion among countries, the rapid drop in real effective exchange rate, and the huge decrease in foreign exchange reserves. Many countries tried to increase foreign exchange reserves and regulate capital flows. Also the foreign exchange market in Korea are found to be the volatile exchange rate, the vulnerable external debt and careless management of the foreign exchange derivatives transaction risk. Conclusions - To lessen the risk in the sudden stop of capital flows, this research suggests the some useful policy measures. To enhance the foreign exchange and distribution market stability, we should improve the price mechanism of exchange rate, hold the appropriate level of foreign exchange reserves, prevent excessive inflows of foreign exchange and promote sound transactions of foreign exchange derivatives.

• KDI Journal of Economic Policy
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• 제44권4호
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• pp.43-78
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• 2022

The arena of strategic competition between the US and China is expandable from international politics, trade and commerce to finance. What would happen if financial sanctions against China are imposed by the US? Would US financial sanctions lead to a sudden outflow of foreign capital and a liquidity crisis in China? We try to address these questions by estimating China's capital flows-at-risk with the CDS premium on Chinese sovereign funds. We follow Gelos et al. (2019) in setting up a quantile regression model from which China's foreign capital flow-at-risks are estimated. Based on our analysis of China's monthly capital flow data, we find that a rise in the CDS premium has statistically significant negative impacts on China's foreign capital flows-at-risk, mainly in banking flows. However, the analysis also found that due to favorable global conditions, an increase in the CDS premium is unlikely to trigger a shift to a sudden outflow of foreign capital at the moment. Meanwhile, this study found no statistically significant correlation between Korea's capital flows-at-risk and the CDS premium, suggesting that the negative impact of US financial sanctions on China would not increase the probability of capital flight from Korea in a significant manner.

• 유통과학연구
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• 제20권7호
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• pp.23-33
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• 2022

Purpose: Although foreign capital flows have played a vital role in fostering the economic growth in recipient countries, there are some concerns about the adverse impact of international capital flows on the banking stability. Hence, the study revisits this issue to explore the relationship between the different types of foreign investments and banking stability in ASEAN region. Research design, data and methodology: Based on the bank-level data of 96 commercial banks and country-level in six ASEAN countries from 2008 to 2019, we perform the multivariate regression analysis and provide a variety of robustness tests. Results: Our empirical evidence shows the volatility of foreign portfolio investments has significantly negative effect on the banking stability, besides that of foreign other investments has the similar influence but the result is relatively less pronounced in some robustness tests. Additionally, increasing trade cooperation and international distribution may lead countries to face higher risk of banking instability driven from these international investments. Meanwhile, the impact of foreign direct investments is positive, but the evidence is the least obvious. Conclusions: Our findings suggest policy-makers in ASEAN and emerging nations as a whole should carefully consider when building policies-related to mitigate the adverse impact of foreign capital flows.

• Journal of Korea Trade
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• 제24권7호
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• pp.38-53
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• 2020

Purpose - A financial crash triggers asset fire sales by foreign investors and, as a consequence, the price of domestic assets severely decreases. Domestic investors take advantage of these low prices by replacing foreign assets with domestic assets, which helps to alleviate the liquidity shock caused by foreigners. However, is the amount of capital retrenchment by domestic investors sufficient to protect the Korean economy from capital stop by foreign investors during financial crisis? This paper answers this question and suggests the implications of this phenomenon for the Korean economy. Design/methodology - We estimate the associations between capital stop and retrenchment and various financial crises such as banking, currency, debt, and inflation crises using the complementary log-log model. Specifically, we use data of gross capital flows to differentiate between the role of foreign and domestic investors in financial markets. Capital stop and retrenchment designate a sharp decrease in gross capital inflows and outflows, respectively. Findings - Capital stop is significantly associated with financial crises, especially currency and debt crises. This implies that increased risk aversion during times of financial turmoil encourages foreign investors to retrench their investments, worsening liquidity shocks. Conversely, capital retrenchment is not significantly associated with such crises. The results show that, although financial crises reduce gross capital outflows, the reduction is not as large as that with capital inflows. Originality/value - The contribution of this paper is threefold. First, this study investigates how domestic investors behave during times of financial distress by studying gross capital flows-not net capital flows. Second, we concentrate on sharp changes in capital flows during crises. Third, we examine the associations between capital stop and retrenchment and financial crises in general, not specific events.

• 무역학회지
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• 제42권4호
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• pp.1-20
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• 2017

본 연구는 우리나라를 대상으로 국제 자본이동과 주요 통화대비 원화 환율 간의 동태적 관계를 분석하고 있다. 우선 그랜저 인과관계 검정 결과에 의하면 국제 자본이동은 단기적으로 주요 통화대비 원화 환율의 변동성에 Granger-cause하는 것으로 나타났다. 하지만 시간이 흐를수록 환율의 변동성이 국제 자본이동에 Granger-cause하는 것을 확인할 수 있었다. 글로벌 금융위기를 기준으로 전과 후를 구분하여 분석한 결과에 의하면 글로벌 금융위기 전에는 국제 자본이동이 원/달러 환율의 변동성에만 유의한 영향을 미치는 것으로 나타났지만, 글로벌 금융위기 이후의 기간에서는 환율의 변동성이 오히려 국제 자본이동에 Granger-cause하는 것으로 나타났다. VAR모형을 바탕으로 일반화된 충격반응함수의 그래프를 살펴보면 국제 자본이동과 환율 변동성은 금융위기를 기준으로 다른 양상을 보이고 있다. 글로벌 금융위기가 발생한 후에는 환율의 변동성이 국제 자본이동을 촉진하지만 시간이 흐르면서 그 영향력이 축소되는 반면 이전 기간에는 이러한 관계가 성립하지 않는다는 것을 알 수 있다. 이러한 실증분석 결과를 종합해보면 우리나라에서는 외환시장의 불확실성이 국제 자본이동에 중요하게 작용한다는 것을 알 수 있다. 따라서 국제 자본이동에 대한 직접적인 규제보다는 외환시장의 불확실성을 적절하게 통제하는 것이 더 효과적인 정책수단이 될 수 있을 것이다.

• The Journal of Asian Finance, Economics and Business
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• 제8권4호
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• pp.263-276
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• 2021

This study examines the effect of international capital flows on corporate capital structures in Vietnam by analyzing panel data from all non-financial listed firms from 2005 to 2014 using pooled ordinary least square (OLS) with a variance estimator. The analysis includes a comparison of the signs and significance of the variable coefficients from the perking order and static trade-off theories to the empirical results to determine the optimum approach to the corporate capital structure given Vietnam's high-inflation environment. The results indicate that international capital flows have a positive relation to the debt ratio in the long term, and the relationship is more robust for 2005-2009 than for 2010-2014. Corporate capital structures adjusted to changes in the business environment in different sub-periods (2005-2009 and 2010-2014). When the economic environment became more favorable, the pecking order theory's predictive power increased, and that of trade-off theory lessened. Manufacturing and non-manufacturing firms required different capital structure decisions to fuel their operations and grow under foreign competition. The analysis demonstrates that firms should intensify their use of long-term debt relative to the availability of capital, which is an implication not only for firms in particular but also for industrial innovation overall.

• Journal of Korea Trade
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• 제23권7호
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• pp.113-127
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• 2019

Purpose - This paper investigates whether financial crises could be the indicators of capital outflow waves or vice versa in Korea. Korea has experienced two severe financial crises, which are the Asian Crisis and the global financial crisis. Although there were many variables associated with these two remarkable events, one notable variable was gross capital outflows, which had significantly increased around them. Motivated by existing literature which built theoretical frameworks explaining the relationship between capital flight and financial crises, we examine the empirical evidence for this relationship. Design/methodology - We use panel data from 61 countries including Korea from 1980 to 2009 to study the associations between capital flight and diverse financial crises such as banking, currency, debt, and inflation crises. To be specific, we use the complementary log-log model to see whether capital outflow waves are reliable indicators for domestic financial crises. Findings - The results show, first, that banking, currency, and inflation crises are associated with capital flight. Second, debt crises are also associated with capital flight, but the result is not robust to different specifications. And, third, the positive associations between capital flight and crises are mainly driven by banking flows rather than FDI and portfolio flows. Originality/value - This paper is one of a few studies that investigates domestic (not foreign) investors' behavior during financial turmoil. Furthermore, theoretical studies which provide contradictory explanations on the movements of gross capital outflows during financial crises emphasizes the importance of empirical evidence in this paper.

• KDI Journal of Economic Policy
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• 제42권4호
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• pp.59-90
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• 2020

U.S. monetary policy has been claimed to generate global spillover and to destabilize other small open economies. We analyze the effects of certain identified U.S. monetary shocks on gross capital flows in the Korean economy using the local projection method. Consistent with previous results on other small open economies, we initially confirm that U.S. interest rate hikes are dynamically correlated with foreign outflows and residents' inflows. That is, not only are they correlated with withdrawals by foreigners but they are also correlated with those by domestic (Korean) investors. The results are mostly driven by portfolio flows. Second, however, the marginal response to a U.S. monetary policy shock is, on average, subdued if we focus on the sample periods after the Global financial crisis of 2007-2008 (henceforth, global financial crisis). We conjecture a possible reason behind the change, an institutional change related to financial friction. If the degree of pledgeability of the value of net worth increases, the marginal responses by both investors would drop with a U.S. monetary policy shock, consistent with our findings.

• 동아시아경상학회지
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• 제3권1호
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• pp.8-16
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• 2015

In the later quarter of the twentieth century, the need for foreign capital is realized among the various countries of the world. Developing countries especially developed multi-pronged strategies to attract foreign capital into the country. One such strategy is the adoption of liberalization policy. Almost all the developing countries started opening their economy, out of the compulsion, to achieve faster rate of economic growth and development. Even a communist country like China adopted liberalization policy as a strategy for accelerated economic growth during 1979. India also joined the race by 1991, when the government announced the policy of liberalization. The importance of FDI extends beyond the financial capital that flows into the country. The huge size of the market in this sector and high returns on investment are two important factors in boosting FDI inflows to power sector. 100 percent FDI is allowed under automatic route in almost all the sub sectors of power sector except the atomic energy. Major foreign investment is made in this sector during 2000 to 2009 is Mauritius with an investment of US$ 4490.96 i.e., 4.24 percent of the total FDI inflows into the country during the period. The estimation of future FDI flow shows a marginal decline in the year 2010. Then from 2011 to 2015 onwards upward trend of FDI was observed.

• The Journal of Asian Finance, Economics and Business
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• 제8권2호
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• pp.791-800
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• 2021

Along with the trend of financial globalization, Vietnam has undergone a process of increasing financial integration. The great capital inflow poses a problem for the monetary policy's ability to follow a planned target during the changes in the global financial markets. This paper aims to examine the impact of financial integration on monetary policy independence in Vietnam and investigate the role of foreign exchange reserves on this relationship. The research borrows from Mundell-Fleming's Trilemma theory. The results show that increasing financial integration reduces the independence of monetary policy in the short term, and foreign exchange reserves have not shown an apparent role in Vietnam. In addition, increasing exchange rate stability has a negative impact on the independence of monetary policy, but it has an impact on growing market confidence and partly supporting the management process of monetary policy in the short term. Therefore, in the long run, Vietnam needs to allow exchange rate flexibility more, but there should not be sudden changes; the size of foreign exchange reserves should be strengthened to facilitate the implementation of an independent monetary policy with an obvious impact in the context of an increasing scale of international capital flows in the future.