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Cyclical Pattern in International Financial Flows to the Semi-periphery

Authors:

Peeters, Benjamin

 

Abstract:

This study assesses the existence of a pattern of short-term financial flows to semi-periphery economies driven by medium-term cycles in center countries. A portfolio optimization model shows that financial inflows to semi-periphery countries evolve countercyclically to medium-term cycles in presence of a large substitution effect (i.e., investors shift out of center economies during the downward phases of the medium-term cycles). However, this effect competes with a volume effect, symbolizing the variations of the total amount invested in the global economy.
 
An estimation strategy for the period 1970-2020 is deduced from the model. The findings suggest that (i) portfolio investments to semi-periphery countries are countercyclical to the medium-term cycles in center economies, (ii) FDI flows are not affected as much as shorter-term flows, (iii) financial flows to periphery countries tend to be procyclical, and (iv) financial and trade connections with center economies tend to accentuate the effect of the cycles.

 

Useful links:

  • paper (published once accepted for publication)
  • dataset (published once accepted for publication)
  • figures (published once accepted for publication)
  • online appendix

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