Empirical Analysis On How Institutional Quality Influences Multinational Capital Flows

In recent years, along with the integration of the world economy and the financial internationalization, the international capital flow increase on depth and scope, and both equity capital and credit capital in developed countries and developing countries increase sharply. The flow direction and capital category of international capital flows is significant different, which for the country's economic and social development have played an important role. For different capital category, different capital flow direction and national income level, this article explores the different effects which institutional quality has on the capital flows. The study has important theoretical and practical significance for understanding the influence factors and taking adjustment method of the capital flows.Based on reviewing the existing related research achievement of international capital flow and institutional quality, this article holds that institutional quality have affects on international capital flows through direct and indirect ways. In this paper, we first define the meaning of institutional quality and determine its measure indicators, and makes descriptive statistics for the institutional quality of sample countries. Secondly we confirm the composition of transnational capital flows, and make a brief statistical analysis of the capital inflow and outflow characteristics of different categories for sample countries. Then we established the panel data model, based on the effects which institutional quality has on international capital flows. Using the 11 years'economic data of 30 developing countries and 30 developed countries, we respectively inspect the direct and indirect effects from four aspects, which institutional quality has on equity capital inflows, equity capital outflows, credit capital inflows and credit capital outflow. We get conclusions as follows. For developing countries, institutional quality directly promotes the global capital inflows and weakens the global capital outflows; it indirectly weakens equity capital outflow and promotes credit capital outflows through the private credit market; and through the stock market it indirectly weakens equity capital outflow and credit capital inflow; it indirectly promotes multinational capital inflows and weakens multinational capital outflows by the way of economic development. For developed countries, the direct effect of institutional quality is all negative; It indirectly weakens equity capital outflows through private credit market; it plays positive role for equity capital inflows and outflows by the way of the stock market; it indirectly promotes the multinational capital inflows and outflows through the economic development. Finally, this paper makes further comparison analysis depending on the empirical results, and gives several enlightenments for developing countries.