Crises, Portfolio Flows, and Foreign Direct Investment: An Application to Turkey

Posted: 13 Mar 2012

See all articles by Merih Uctum

Merih Uctum

City University of New York (CUNY) - Brooklyn College & the Graduate Center - Department of Economics; City University of New York (CUNY) - Graduate Center

Remzi Uctum

Université Paris X Nanterre

Date Written: March 12, 2012

Abstract

We analyze how financial and economic crises affect the relation between the components of capital flows and their determinants in an emerging economy. Our results suggest that the composition of capital flows matters, crises can explain the volatility of portfolio flows and foreign direct investment, and modeling them as endogenous breakpoints improves the results considerably. By using data from the Turkish economy, we estimate these breakpoints together with the parameters of the model and find that they correspond to international and domestic crises that hit the country. Although both components are affected by similar crises, direct investment reacts strongly to the domestic crisis, while portfolios flows are more sensitive to global financial conditions. Breaks also have an effect on the significance and sign of determinants of each type of international investment. Evidence indicates changes in all coefficients in both investment types and suggests that analyses assuming parameter constancy lead to misleading results if they ignore the influence of endogenous breaks.

Keywords: Capital flows, Crises, Structural changes, Country risk

JEL Classification: F32, F36, G15

Suggested Citation

Uctum, Merih and Uctum, Remzi, Crises, Portfolio Flows, and Foreign Direct Investment: An Application to Turkey (March 12, 2012). Economic Systems, Vol. 35, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=2020330

Merih Uctum (Contact Author)

City University of New York (CUNY) - Brooklyn College & the Graduate Center - Department of Economics ( email )

Bedford Avenue and Avenue H
Brooklyn, NY 11210-9966
United States
718-951-5317 (Phone)

City University of New York (CUNY) - Graduate Center ( email )

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New York, NY 10016
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Remzi Uctum

Université Paris X Nanterre ( email )

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92001 Nanterre Cedex, 92001
France
+33 1 40 97 78 48 (Phone)

HOME PAGE: http://economix.u-paris10.fr/fr/axes/mmei/membres/?id=107

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