The Study Of Sudden Stop And Sudden Flight

Many countries experienced waves of international capital flows in the1980sand1990s. In the past decade capital flow volatility increased even more. Capitalflows dried up in late2001, surged throughout the mid-2000s, contracted sharplyduring the Global Financial Crisis of2008-2009, and then rebounded quickly in2010. Capital flow volatility can have widespread economic consequences, such asamplifying economic cycles, increasing financial system vulnerabilities, andaggravating overall macroeconomic instability.It has attracted the concerns ofeconomists and policy makers.However not only the net capital flow volatilityincreased, the gross capital flow volatility increased even more, the composition offlows also changed.As we all know, the Global Financial Crisis and the Europeansovereign debt crisis both originated in developed economy, the crisis affectedespecially widespread in the world.Because of these circumstances, previousresearch can not be able to adapt the new features of international capital flows.This dissertation aims to analyze the sudden and extreme movements ofinternational capital flows, especially the sudden stop of gorss inflow and suddenflight of gross outflow which may have a negative impact on a country’s economy.In order to adapt the new characteristics of international capital flows, bycomparative analysis, first our analysis focuses on gross capital inflow and outflow,differentiating between capital movements viewed as being initiate by foreigninvestors and by domestic investors, we study the different performance of them,second we classify the sample countries to analyze the similarities and differencesbetween developed economy and emerging market, third we study the compositionof capital flows to compare the different of foreign direct investment, foreignportfolio investment and other investment.We also analyze the influences and causeof sudden stop and sudden flight in China.The dissertataion can be divided into five parts, in the first part we review theprevious literature, analysis the stylized facts of sudden stop and sudden flight. In part two we study the influence of sudden stop and sudden flight on growth. Next,we investgate what caused sudden stops which declined the growth. Then we studythe influence and causes of these episodes of extreme capital flows. The last part isconclusion.Our results suggest that sudden stop and sudden flight are practically nodiffernences in the probability and duration. But they did not happen in the sameperiod, which means they are caused by different factors. They also have differenteffects on growth. Sudden stop can decline growth significantly but sudden flightcan’t. With the high financial integration, no matter the crisis initiated in developedcountries or emerging countries, it can easily contagion to the others.But thenegative effects of sudden stop are smaller in developed economy than in emgergingmarkets. The sudden stops in developed economies are mainly driven by globalfactors and American factors. But in emerging market growth and reserves also haveeffects on capital flow volatility. In previous researches, FDI is regarede as the safestand most stable kind of capital flows.But from the point of view of volatility, FDI isalmost the same as FPI and other investments. In developed economy, the suddenstop of other investment can decline the growth most, but in emerging market FPIcauses the biggest negative effects. In China, sudden stop and sudden flight alsohappened. Just like other emerging market, sudden stop can drop the growth andsudden flight can’t. Except of global factors and American factors, the high growthand the anticipation of RMB appreciation are the mainly domestic driving factors.With the outbreak and contagion of the financial crisis, capital control showedits good effects on reducing the impact of crisis, which give rise to a new opinion oncapital management. The IMF also admit the efficience and effectiveness of capitalmanangement.In summry, policymakers should use macroecomomic policies,prudential mearsures and capital controls to manage capital flows. Our resultsindicate a significant role for global factors and contagion in driving episodes,suggesting an important role for global institutions and cross-country cooperation inreducing capital flow volatility.