| Abstract: |
A lot of attention has been directed towards recent financial crises around
the world. Empirical studies have found that short-term flows increase
financial fragility and increase also the probability of financial crises.
This study takes a macro-oriented approach and shows that while large and
volatile short-term flows have no effect on growth for rich countries, they
are growth inhibiting for emerging markets. These results are robust to a
large variety of estimation methods and pass stringent extreme bound analysis
criteria. Moreover, their magnitude turns out to be of economic importance.
The analysis indicates that opening up emerging markets' capital accounts,
which implies increased short-term capital flows, is not a clear-cut way to
prosperity. |