Large Capital Inflows, Sectoral Allocation and Economic Performance

By Gianluca Benigno, Nathan Converse, Luca Fornaro. 2015

172 citations recorded by the source corpus.

This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/d92eaac8d3eaeb0dcda88b1ae19627784f8bc3de

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. E. Mileva
2. M. Habib
3. John G. Fernald
4. G. Cette
5. Livio Stracca
6. Benoît Mojon

In Finance

1. E. Mileva
2. M. Habib
3. G. Cette
4. Livio Stracca
5. Benoît Mojon

Citations in the corpus

• The pre-Great Recession slowdown in productivity (2015, background): “Recent evidence is provided by Kalantzis (2014) and Benigno et al. (2015).24 A second form includes misallocation of capital across firms within sectors following fast credit growth (Reis, 2013, and Gopinath et al.”
• The Real Exchange Rate and Economic Growth: Revisiting the Case Using External Instruments (2017, background): “In Aizenman and Lee (2010), Benigno et al. (2015) and McLeod and Mileva (2011) there are learning by doing effects external to the individual firm in the traded goods sector, therefore a weak real exchange rate is needed to support the production of tradables.”
• International Credit Supply Shocks (2017, unknown): “Berger et al. (2015) use US micro data to quantify the elasticity of consumption to changes in housing wealth. Kaplan et al. (2016) show that this elasticity depends on the source of the shock moving house prices.”