The Determinants of Disaggregated Capital Inflows to Emerging Market Economies: Empirical Evidence from Korea

Abstract

This paper investigates the key factors in determining disaggregated portfolio investment flows to Korea. I categorize total portfolio investment flows by investor type, such as global banks, investment funds, securities firms, and pension companies. From the structural vector autoregression model with dummy variables, this paper finds that the properties of each institution's capital inflows are quite different. For example, investment funds and securities firm flows are more responsive to stock market index, whereas pension companies are more sensitive to domestic output growth. This implies that the impact of any economic shock on the total foreign capital flows cannot be generalized as the impact on each investment group's capital flow.