External Financing for Development: New Evidence and Policy Perspectives
Paper Session
Monday, Jan. 5, 2026 1:00 PM - 3:00 PM (EST)
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Chairs:
Sushanta Mallick, Queen Mary University of London - Povilas Lastauskas, International Monetary Fund and University of Cambridge
Capital Flows to Emerging Markets: Disentangling Quantities from Prices
Abstract
We study the joint dynamics in the volume and prices of capital flows to EMEs. We identify credit demand/supply shocks of idiosyncratic/common nature using a Dynamic Factor Model. While common credit supply shocks are the main driver of prices, idiosyncratic credit demand and supply shocks are key for quantities. A calibrated multi-country SOE/RBC model is used to further analyze the transmission channels. Augmented with correlated productivity and interest rate shocks, the model matches the comovement between prices and quantities as well as business cycle moments. Fundamentals matter significantly more for volumes than prices, driven by a global financial cycle.Remittances in Times of Uncertainty: Understanding the Dynamics and Implications
Abstract
Remittances in Times of Uncertainty: Understanding the Dynamics and ImplicationsThis paper delves into the intricate relationship between uncertainty and remittance flows. The prevailing focus has been on tangible risk factors like exchange rate volatility and economic downturn, overshadowing the potential impact of uncertainty on remittance dynamics. Leveraging a new dataset of quarterly remittances combined with uncertainty indicators across 77 developing countries from 1999Q1 to 2019Q4, the analysis highlights that uncertainty in remittance-sending countries negatively affects remittance flows. In contrast, uncertainty in remittance receiving-countries has a more complex, dual effect. In countries with high private investment ratios, rising domestic uncertainty leads to a decline in remittances. Conversely, in countries with low public spending on education and health, remittances increase in response to uncertainy, serving as a social safety net. The paper underscores the heterogeneous and non-linear effects of domestic uncertainty on remittance flows.
How do Climate Shocks Interact with FDI, ODA and Remittances in Their Effects on Economic Growth?
Abstract
Financial inflows to developing countries have been broadly increasing during the last two decades, although there is still no consensus on their growth impact in the literature. An emerging literature focuses on how their effects depend on the characteristics of recipient countries, such as human and physical capital constraint, macroeconomic policy, and institutional capacity. This paper extends the literature by studying how climate shocks interact with the main types of financial flows to developing economies, including Foreign Direct Investment (FDI), Official Development Assistance (ODA) and migrants’ remittances, in their effects on economic activities. This can occur through various channels. For example, climate shocks damage the local productive capacities and therefore reduce its ability to absorb the financial inflows; climate shocks may change the composition of inflows and thus their growth impact; and climate shocks increase the levels of financial inflows but at the same time a large share of them may be diverted to emergency responses instead of investment in human and physical capital, which may have different short- and long-term growth implications. Using a sample of low and middle-income countries from 1995 to 2022, this paper empirically estimates these interaction effects and discusses the channels and policy implications.Discussant(s)
Baoping Shang
,
International Monetary Fund
Andres Fernandez
,
International Monetary Fund
Kangni Roland Kpodar
,
International Monetary Fund and FERDI
Alassane Drabo
,
International Monetary Fund
JEL Classifications
- F3 - International Finance
- F4 - Macroeconomic Aspects of International Trade and Finance