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Project

Short term capital flows and portfolio investment in the BRIC countries: how to cope with their potential risks?

The majority of the existing studies concerning the determinants of capital flows focus on foreign direct investment, which is considered the most stable component of total capital flows and is generally associated with positive spillovers such as transmission of managerial skills and technology transfer to the recipient countries. On the other side, portfolio and short-term capital flows, while generating positive effects on consumption and investments, are also an important source of vulnerability and instability for the recipient economy. The associated overheating of the economy, large current account deficits, an overvalued currency and the decrease in the domestic interest rate make investments in the host economy less attractive in the eyes of international investors. Therefore, sudden stops and reversals (i.e. outflows) of short term capital inflows are likely to take place because (as opposed to FDI) they do not involve "disinvestment" costs and they can be easily reversed.
Date:1 Jun 2010 →  31 Mar 2011
Keywords:CAPITAL FLOWS
Disciplines:Applied economics, Economic history, Macroeconomics and monetary economics, Microeconomics, Tourism