NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Globalization and the Increasing Correlation between Capital Inflows and Outflows

J. Scott Davis, Eric van Wincoop

NBER Working Paper No. 23671
Issued in August 2017
NBER Program(s):   IFM

We document that the correlation between capital inflows and outflows has increased substantially over time in a sample of 128 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 14 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows and outflows is consistent with the data.

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Document Object Identifier (DOI): 10.3386/w23671

 
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