CAPITAL FLOWS AND EMERGING MARKETS : structural evolutions and recent trends

Capital inflows to emerging countries display strong variations over the last two decades: a significant surge in the pre-crisis period, a stop in 2008- 2009 characterized by massive outflows , mostly from portfolio investments and other investments, followed by a quick and impressive recovery, encouraged by very accommodating monetary policies. This trend reversed since 2013, with successive event s that induced a higher volatility of the inflows . In this report, we analyze the capital flows to emerging markets per type of investment (portfolio investments, direct investments and other investments) and per region. We emphasize on the changes in the structure of these flows. Not surprisingly, China’s weight substantially grew in the last ten years with 30% of the inflows and 35% of the outflows. China gathers alone 38% of worldwide foreign direct investment ( FDI ). Among the noticeable elements, FDI remained relatively stable, even during the 2008 turmoil and during market stressed periods. Emerging countries’ share of FDI s did not cease to grow, particularly since the crisis, gathering today almost 58% of worldwide FDI . This evolution is understood to constitute a support to the growth of emerging market economies (EMEs) , although the relationship between the recipient country’s growth and capital flows appears to rely a lot on the nature of the FDI and the features of each country (development, comparative advantage). Finally, we look at the potential effects of the uprising in trade tensions on FDIs, again much depending on their intrinsic nature .