Capital Flows to Emerging and Transition Economies During and After the Global Financial Crisis in 2008

Abstract

During the years before the crisis, emerging market economies have encountered large waves of capital flow. Nevertheless, with the beginning of the crisis, the financial institutions from developed countries stricken by the crisis, started massive withdrawal of capital from their affiliates located in emerging market economies, which caused a negative influence over the foreign exchange reserves and national currencies and even over the liquidity crisis in these economies. This paper analyses the dynamics of various types of capital flows to emerging economies during and after the global financial crisis. The first part discusses dynamics of various types of international capital flows during the global financial crisis. The second part focuses on the regional distribution of capital inflows to emerging markets economies. The third part raises the issue of the changed pattern of foreign direct investment, observed during and after the global crisis. The fourth part discusses possible policy responses for dealing with volatile capital flows to emerging market economies.

Key words: capital flows, emerging economies, global financial crisis, foreign direct investment, portfolio inflows, remittances