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Capital Flows in Asia-Pacific: Controls, Bonanzas and Sudden Stops

Author

Listed:
  • Margit Molnar

    (OECD)

  • Yusuke Tateno
  • Amornrut Supornsinchai
Abstract
The Asia-Pacific region has long been prone to volatile capital flows that have posed a challenge for authorities to cope with and occasionally led to payment difficulties dragging down exchange rates and spilling over to the real economy. The recent global crisis repeated past history, although most economies hard hit by the 1997-1998 Asian financial crisis have learnt a lesson and are now better prepared to face volatile capital flows. Asian and Pacific countries have strengthened capital controls over 1995-2010, in particular those targeting portfolio flows. Now more countries impose some sort of control on outflows of all types of capital than 15 years ago and controls on outflows appear more stringent than on inflows. Notwithstanding the controls, most Asia-Pacific economies experienced at least one spell of large capital flows. To effectively curb capital inflow bonanzas, the measures need to be targeted. Portfolio inflow surges can be curbed by controlling bond inflows in general and in the case of very large surges, by limiting collective investment inflows. Controls on credit inflows appear effective in reducing the probability of cross-border lending booms. Furthermore, measures targeting residents appear more effective in reducing the probability of capital inflow bonanzas. Beside control measures, other conditions also appear to have a bearing on the probability of occurrence and on the length of the capital inflow spell. Previous inflows appear to be an important determinant of future booms in all asset categories, while global risk appetite increases the probability of overall inflows and cross border credit bonanzas. Domestic growth only explains the occurrence of equity portfolio inflow booms. A more lenient stance on outflows could shorten the duration of capital inflow bonanzas and hence reduce their cumulative impact on the economy. La région Asie-Pacifique a longtemps été exposée à des flux de capitaux volatiles dont la gestion a représenté un défi pour les autorités et qui ont occasionnellement entrainé des difficultés de paiement tirant vers le bas les taux d’intérêt et se répercutant sur l’économie réelle. L’histoire s’est répétée avec la récente crise mondiale, même si la plupart des économies durement touchées par la crise financière asiatique de 1997-98 ont appris la leçon et sont maintenant mieux préparées pour faire face à des flux de capitaux volatiles. Les pays de l’Asie et du Pacifique ont renforcé les contrôles de capitaux de 1995 à 2010, en particulier ceux ciblant les flux de portefeuille. Maintenant plus de pays imposent une certaine forme de contrôle sur les flux sortants de tous types de capitaux qu’il y a 15 ans et les contrôles sur les flux sortants sont plus stricts que sur les flux entrants. Cela étant, la plupart des économies de l’Asie-Pacifique ont connu au moins une période d’importants flux de capitaux. Pour enrayer efficacement les booms de flux entrants, les mesures doivent être ciblées. Les flux entrants de portefeuille peuvent être enrayés en contrôlant les afflux de bons en général et dans le cas de flux de grande ampleur, en limitant les investissements collectifs entrants. Les contrôles sur les entrées de crédits apparaissent efficaces pour diminuer la probabilité des booms de prêts transfrontaliers. De plus, les mesures ciblant les résidents semblent plus efficaces pour réduire la probabilité de booms d’entrées de capitaux. Outre les mesures de contrôle, d’autres conditions semblent également avoir un impact sur la probabilité de survenance et sur la durée d’une période d’entrée de capitaux. Les flux précédents semblent être d’importants déterminants des futurs booms pour toutes les catégories d’actifs, alors que l’appétit mondial pour le risque augmente la probabilité d’afflux globaux et des booms des crédits transfrontaliers. La croissance domestique explique seulement l’apparition de booms d’investissements entrants en titres de participation. Une attitude plus indulgente envers les flux sortants pourrait réduire la durée des booms de flux entrants et donc réduire leur impact cumulatif sur l’économie.

Suggested Citation

  • Margit Molnar & Yusuke Tateno & Amornrut Supornsinchai, 2013. "Capital Flows in Asia-Pacific: Controls, Bonanzas and Sudden Stops," OECD Development Centre Working Papers 320, OECD Publishing.
    • Handle: RePEc:oec:devaaa:320-en
    DOI: 10.1787/5k40d65jjx23-en
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    References listed on IDEAS

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    Cited by:

    1. Levan Efremidze & Sungsoo Kim & Ozan Sula & Thomas D. Willett, 2017. "The relationships among capital flow surges, reversals and sudden stops," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 9(4), pages 393-413, November.
    2. Agénor, Pierre-Richard & Jia, Pengfei, 2020. "Capital controls and welfare with cross-border bank capital flows," Journal of Macroeconomics, Elsevier, vol. 65(C).
    3. Masahiro Inoguchi, 2020. "Factors driving International Capital Flows and the Change after the Global Financial Crisis," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 16(2), pages 163-196, February.
    4. Masyita Crystallin & Levan Efremidze & Sungsoo Kim & Wahyu Nugroho & Ozan Sula & Thomas Willett, 2015. "How Common are Capital Flows Surges? How They are Measured Matters -a Lot," Open Economies Review, Springer, vol. 26(4), pages 663-682, September.

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    More about this item

    Keywords

    bonanzas; booms; capital controls; capital flows; contrôles de capitaux; flux de capitaux; retraits soudains; sudden stops;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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