1 / 21

Victor Murinde Birmingham Business School University of Birmingham

Victor Murinde Birmingham Business School University of Birmingham. Capital Flows and Capital Account Liberalisation in the Post-Financial Crisis Era: Challenges, Opportunities & Policy Responses. Introduction.

Download Presentation

Victor Murinde Birmingham Business School University of Birmingham

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Victor Murinde Birmingham Business School University of Birmingham Capital Flows and Capital Account Liberalisation in the Post-Financial Crisis Era:Challenges, Opportunities & Policy Responses

  2. Introduction • African economies enjoyed huge increases in private capital inflows during 2000-2007 • All change: The global financial crisis and uncertainty • The complexity of capital flows and capital account liberalisation in Africa in the post-financial crisis period

  3. The route map of the presentation • Capital flows: The flow of funds framework • The global financial crisis and recent financial crises • Capital flows, the typology of capital controls and capital account liberalisation in Africa • Policy and research challenges

  4. Capital flows: A flow-of-funds framework • A “…main function of the flow of funds accounts is to reveal the sources and uses of funds that are needed for growth …” (Klein, 2000, p.ix). • Flow of funds models: why agents in one sector hold specific assets and substitute assets within their portfolio. • Balancing domestic assets with foreign assets • Important assets: private non-bank lending, corporate debt and equity, FDI, ODA (aid), and remittances.

  5. Table 1: Flow of Funds Framework

  6. The Global Financial Crisis: What do we know? • Mexican Peso crisis December 1994 • 1997 East Asia financial crisis • Russian financial crisis of August 1998 • Current global financial crisis • When the crises occurred, key financial prices (exchange rates, stock prices, short-term interest rates, asset prices) deteriorated in the large African economies. • Lessons and uncertainty in capital flows.

  7. Table 7: Impact of the crisis on selected African financial markets in an international context

  8. Table 7: Impact of the crisis on selected African financial markets in an international context (Cont’d)

  9. Table 8: Exchange rates for selected African countries (local currency per US Dollar)

  10. Capital Flows and Capital Account Liberalisation in Africa • The current trends in capital controls and capital account liberalization in Africa • Table 2 shows the typology of controls on portfolio investment and FDI in Africa • Table 3 presents examples of capital account liberalisation process • Do these matter?

  11. Table 2: Typology of controls on portfolio investment and FDI in African countries

  12. Table 2: Typology of controls on portfolio investment and FDI in African countries (Cont’d)

  13. Table 2: Typology of controls on portfolio investment and FDI in African countries (Cont’d) Source: Adapted from IMF (2009), Table A3.1, page 69-70.

  14. Table 3: Examples of Capital Account Liberalisation Process

  15. Table 3: Examples of Capital Account Liberalisation Process Source: IMF (2009), Table A3.2, p71; and Ndikumane (2003), Table A2, pp 56-59 on the evolution of these figures

  16. What really matters? • PULL FACTORS: for total capital flows into Africa include: macroeconomic performance (both real GDP growth and fiscal balance), the index of securities market development, and a dummy for South Africa and Nigeria. • But for FDI: growth performance, the quality of the business environment, and a dummy variable for oil producers. • Remittances: (push and pull factors) foreign income and booming sector; financial sector reforms • But, institutions also matter for capital inflows to Africa • The variable for capital account liberalisation is not significant in a model of the determinants of capital flows

  17. Capital account liberalisation challenges and policy responses • The policy challenges associated with private capital inflows have been similar across countries (Table 10) • The policy responses have varied depending on the institutional factors as well as the monetary and exchange rate regime. • Lesson: African countries should redesign their capital account liberalisation regimes, alongside their institutional and financial sector policies in order to tilt the composition of inflows toward longer-term flows.

  18. Conclusion: Lessons and Policy Agenda for Africa – Short run • The African regional networks of national finance ministers and central banker governors is timely: but publish the news. • Improve the capacity to monitor movements of the main financial prices that provide the propagation mechanism for contagion effects, namely exchange rates and stock prices. • Improve the capacity to monitor inflows • Keep fiscal expenditures steady during episodes of large capital inflows; this has been shown to help recovery in the aftermath of the crisis.

  19. Conclusion: Lessons and Policy Agenda for Africa – medium and long term • ADB: A regional strategy is desirable • Pay attention to ‘pull’ and ‘push’ factors for each of the 4 types of capital flows (FDI, GPI, debt, and remittances) • Countries also need to implement supportive institutional and regulatory reforms that will strengthen their capacity to manage capital inflows and the associated vulnerabilities. • There is no “one-size-fits-all” prescription.

  20. Hence, the research challenge • Further research: the flow of funds framework, with asset demand equations for capital flows (FDI, debt, aid and remittances) against each type of economy (resource-rich, non-oil exporting, other) and the pull factors that maximise capital flows for the economy. • Stochastic simulations of: (a) response of flows to ‘pull’ and ‘push’ factors post-crisis; (b) policy response

  21. Thank you for your attention

More Related