Essay on Capital Flows to Emerging Markets

Rabin Hattari

Major Professor: Carlos Ramirez

Committee Members: Willem Thorbecke, Ramkishen Rajan

Arlington Original Building, 244
September 03, 2008, 08:00 PM to 07:00 PM


This dissertation is a collection of three empirical essays on the issue of capital flows to emerging markets. These essays investigate the relevant of distance in the context of globalization, the importance of information flows in increasing more capital flows for emerging markets, and discussed the issue of increased intra-Asia FDI flows. All of these essays are written in bilateral context and thus employ gravity models. The first empirical paper investigates sources and determinants of FDI flows to developing Asia using bilateral FDI flows for the period 1990 to 2005. The paper pays particular attention to possible differences in the determinants of FDI flows to developing Asian economies from the rest of the Asia-Pacific region compared to those from non-regional OECD economies with an emphasis on the role of distance and time zone. The second empirical paper attempts to show how increased in informational flow, proxy by bilateral telephone flows, reduces the magnitude of distance and thus enable direct investors and portfolio investors to invest in other country. The paper finds the degree of impact of increased in information flow to distance is different between FDI and FPI equity. The second paper relies on a novel database which includes FDI and FPI equity flows for 884 country pairs over the period from 2002 to 2004. The third empirical paper is an essay on intra-Asia FDI. Developing countries are rapidly emerging as new and important sources of foreign direct investment (FDI) to other developing countries. A range of drivers of FDI flows, including transactional and informational distance (proxy by distance), real sector variables, financial variables and institutional quality are examined.

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