Publications

Working Papers

(WP6/2018) Bilateral Capital Flows: Gravity, Push, and Pull

Published Date: : September 2018
Author:: Dr. Rogelio Mercado, Jr

Summary


Using bilateral capital flows data from 10 advanced reporting economies—with over 186 bilateral country pairs—for 2000 to 2016, this paper provides strong evidence on the significance of gravity factors, including distance and bilateral trade ties, in explaining cross-border financial asset flows. This finding is new to the capital flows literature that consider push and pull factors. In addition, this study offers new evidence of regional contagion as bilateral capital flows decrease more for country pairs with closer geographic proximity (or with less information frictions) than those that are farther apart when global risk aversion rises. These findings have policy implications on the importance of information frictions, bilateral trade ties, and regional cooperation on bilateral financial asset flows.