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Three essays on different nature and effects of capital flows among Asian and Latin American countries




Bolukoglu, Anil, author
Vasudevan, Ramaa, advisor
Bernasek, Alexandra, committee member
Braunstein, Elissa, committee member
Koontz, Stephen, committee member

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This dissertation contains three essays on the distinct nature and effects of capital flows on Asian and Latin American countries. Chapter I presents a Post-Keynesian open economy model to investigate the possible effects of capital flows on capacity utilization and distribution in Asian and Latin American countries. In the case of Asian countries, capital flows increase labor productivity through spill-over effects. The increase in labor productivity leads to a decrease in wage share of workers from national income which leads to lower prices. Lower price level results in real exchange rate depreciation and provides higher trade balances through enhanced competitiveness of export goods. In the case of Latin American countries, capital flows result in real exchange rate appreciation in the absence of capital controls. This real exchange rate appreciation decreases the cost of foreign borrowing, foreign intermediate goods and lower wage shares. In line with all these developments, capacity utilization increases, but trade balances deteriorate due to diminished export competitiveness. Chapter II addresses different dependent relations that lead divergent paths of Asian and Latin American countries toward globalization. Nature of dependency is detected through different types of shocks to current account balances. It is found that Latin American countries are dependent on center countries financially while Asian countries are dependent on world demand for their export goods. This divergent nature of dependent relations shape the nature of foreign capital that invests in these countries. Foreign investments in Latin American countries are domestic market oriented and for financing needs. These investments do not have future export revenue potentials and reproduces the dependency on international financial markets. Employment of capital controls and high structural domestic savings allowed Asian countries to be more selective in channeling foreign capital. They employed foreign investments to enhance export competitiveness. However, the export oriented path of development tied their economies to pattern of world trade and produced a divergent dependent relationship. Chapter III tests the dynamic relationship between capital flows, real exchange rate appreciation and trade balances in Latin American and Asian countries. The analysis suggests structural differences between Asian and Latin American countries. Different integration strategies followed in the era of globalization period led to distinct patterns in relation between capital flows and trade balances. In order to test the relationship, Panel Vector of Autoregression analysis and orthogonalized import response functions are employed. It is found that foreign capital flows affect trade balances negatively in Latin American countries. In the case of Asian countries, a positive relationship between capital flows and trade balances is detected, however this relationship is not statistically significant.


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capital flows
post-Keynesian growth
trade balances
Asia and Latin America
real exchange rate


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