DEBT-CREATING CAPITAL FLOWS AND SHOCK SPILLOVERS IN AN EMERGING ECONOMY (UKRAINE’S EXAMPLE)

Abstract

This paper investigates the financial channels of shocks transmission and crises diffusion in an emerging market economy and highlights the role of debtcreating capital flows. Analysing the determinants of capital flows, author decomposes them into the contribution of global «push» factors and country-specific «pull» factors and estimates their significance on Ukraine’s example. Author argues, that «push» factors play a major role in driving capital flows as long as a business cycle in emerging economy is synchronized with a global business cycle; however, being affected by local or regional crisis, emerging economy is getting decoupled from the global developments and «pull» factors are gaining the dominant role. Author also considers the macroeconomic implications of debtcreating capital flows and external debt in emerging market economies and provides empirical estimates of economic growth effect in Ukraine. JEL: F34, F62, F37.