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The Impact of Global Economic Policy Uncertainty on Capital Flows in Emerging Economies

【Authors】
TAN Xiaofen, ZHANG Kai & GENG Yaying
【WorkUnit】
Central University of Finance and Economics, 100081
【Abstract】

Based on the quarterly data of 33 emerging economies from 1997 to 2013, we employ the global EPU index developed by Baker and others (2016) to examine its impact on capital flows in emerging economies. We find the effect of economic policy uncertainty to be non linear. When the economic policy uncertainty is low, the impact is very significant, and vice versa. The difference in interest rate becomes the most important factor. Further study shows after the financial crisis, the impact of economic policy uncertainty on capital flows decreases. Besides, the impact of economic policy uncertainty on securities investment and other investment is significant, but small on direct investment. The findings imply that the government should maintain macroeconomic stability, increase policy transparency and predictability, and avoid the adverse impact of large outflows and inflows on the economy.

JEL:F32, F41

【KeyWords】
Emerging Market Economies, Capital Flows, Economic Policy Uncertainty