Capital flows

Capital flows connect investment decisions in one economy with financing conditions in another. This page brings together an introduction to their measurement and Jonathan Fortun’s research on emerging markets, exchange rates and the transmission of global financial conditions. The publication archive below links to the original work and distinguishes authored research from media commentary.

What are capital flows?

Capital flows are cross border financial transactions: for example, an investor buying another country’s bonds, a company financing an overseas operation or a bank making a foreign loan. The category matters. Direct investment, portfolio investment and bank related flows describe different relationships and can behave differently. A portfolio flow estimate is therefore not a measure of every form of international financing.

A useful first question is whose activity a number describes. Nonresident purchases of domestic assets and residents’ purchases of foreign assets are different sides of the external financial relationship. Even a series called “inflows” may already subtract sales from purchases within its category. Read its definition before comparing it with a net flow total.

Flows, stocks and country coverage

A flow covers a period; a stock describes a position at a date. A change in the value of foreign holdings can reflect prices and exchange rates as well as transactions. It should not automatically be interpreted as new money entering or leaving a country.

Country definitions also matter. Residence locates an entity in an economy; nationality can group it with the country of its controlling parent. The BIS explanation of residence and nationality shows why the two perspectives answer different questions. Before comparing regional totals, check which countries, investors and instruments are included.

What drives emerging market capital flows?

Analysis often separates global “push” factors, such as international financial conditions, from domestic “pull” factors, such as an economy’s outlook and institutions. Their relative importance can change across periods and types of investment. The IMF literature survey on capital flow determinants provides a starting point for this distinction.

For a particular episode, the analytical task is to connect the financing decision to the receiving economy. Is a change broad across markets or concentrated in a few countries? Does it concern equity or debt? Does the adjustment appear in an exchange rate, a borrowing cost or the quantity of financing available? These questions are more informative than treating every rise in inflows as the same economic event.

How to read timely flow estimates

High frequency indicators can help track developments before full balance of payments statistics arrive. Their coverage and construction differ, so they are not interchangeable. The IMF guide to capital flow data discusses these measurement differences and the use of timely portfolio flow proxies.

For any release, identify its observation period, publication date, country universe and revision policy. Compare like with like: a monthly estimate with another monthly estimate, and the same investment category with itself. When a source revises history, retain the distinction between the original reading and the latest estimate. A timely signal can be useful without being a complete picture.

Sovereign issuance is a different measure

Bond issuance describes securities being created; investor flow measures describe investment transactions. Gross issuance can include refinancing. Net issuance deducts redemptions, as set out in the BIS securities glossary. Neither number alone establishes who bought the bonds or the economy’s total net capital inflow.

Research, attribution and further reading

Jonathan Fortun’s work connects portfolio allocation with exchange rates, external balances and financing conditions. Follow the dated publications and commentary below for the argument and evidence behind a specific episode. Institutional research retains its publisher and coauthors; a journalist quoting Jonathan remains the author of that reporting.

The Japan research theme examines another perspective on international capital allocation. The Bolivia economy theme follows monetary and foreign exchange constraints in a receiving economy. The professional biography connects these interests, and the press kit provides attribution for interviews and introductions. This reference page does not redistribute the IIF’s underlying datasets.