Research Activities
Research Projects 2024
Impacts of Uncertainty on International Capital Flows in ASEAN and Other Emerging Countries
Outline
This study empirically investigates the impacts of uncertainty on international capital flows into and out of emerging economies, with special emphasis on ASEAN countries. Recently there has been an increasing number of studies to develop uncertainty measures (Baker et al 2016; Ahir et al 2022), empirical studies which relate uncertainty to international capital flows are still limited (Choi et al, 2023).
International capital flows have been affected by global uncertainty hikes caused by the global financial crisis in 2007/08, debt crises in EU (around 2012), Brexit (2016-20), the US-China trade conflict (2018-), COVID-19 pandemic (2020-23), and Russia’s invasion into Ukraine (2022-). There are two main channels through which increased uncertainty may reduce international capital flows. The first is the so-called ‘wait-and-see’ channel and the second is that higher uncertainty tends to increase a country’s risk premia and consequently investors reduce their investments into and/or out of the country (Choi et al, 2023).
We will construct a panel dataset consisting of uncertainty indexes developed through text analyses of newspaper articles and various statistics related to international capital flows such as foreign direct investments, bank credits, portfolio and debt securities. Then, the panel dataset is used to empirically investigate the impacts of uncertainty on international capital flows by estimating vector autoregressive (VAR) models in various specifications including local projections (Pedroni 2013; Canova and Ciccarelli 2013; Jordà2005).
Data will be selected from available options based on the definition, availability, and applicability to various specifications, with reference to recent survey articles such as Cascaldi-Garcia et al (2023) and Shinohara et al (2020) for uncertainty indexes and Koepke and Paetzold (2020) for capital flow data.
For example, the World Uncertainty Index (WUI) developed by Ahir et al (2022) is based on text analysis using country reports issued quarterly by Economic Intelligence Unit (EIU). WUI is now available for 143 countries including 9 ASEAN countries except for Brunei. Although the dependence on a single source can be a weak point for possible information bias, it has an advantage to facilitate time-series and cross-country comparison on the other hand. By using WUI for uncertainty measures, we can investigate (1) the impacts of rising uncertainty caused by the US-China trade conflicts on FDI inflows to ASEAN countries and their dynamic characteristics, (2) the impacts of rising uncertainties in own country or major economic partners such as the United States, EU, China, Japan and South Korea on international capital flows (bank credits, portfolio and debt securities) into and out of ASEAN. These analyses are not possible with VIX (volatility index) which is one of the most widely used measures of risks and uncertainties. In addition, by focusing on ASEAN countries, project members can make the best use of their knowledge and experience on the countries, enabling deeper analyses and interpretation of estimation results. Furthermore, our planned analysis on the uncertainty impacts on FDI will add values to Choi et al (2023), which focuses on flows of bank credits and equity and debt securities.
Period
April 2024 - March 2026
Members
| Role | Member |
|---|---|
| [ Organizer ] | Umezaki, So |
| [ Co-researcher ] | Zhou, Yang |
*Affiliations are as of April 2024.
Expected Outcome
- Paper Submission to Peer-Reviewed Journal