Gross capital flows as a superior metric in explaning capital flows and allocation in the EU: evidence from 1995-2018
DOI:
https://doi.org/10.32015/JIBM.2025.17.1.7Keywords:
net capital flow, gross capital flow, Lucas paradox, allocation puzzleAbstract
Research on Lucas’s paradox and the allocation puzzle has not reached a consensus on which type of capital should be used to study the magnitude and direction of capital flows. With limited exceptions, the analysis of Lucas’s paradox and the allocation puzzle has predominantly relied on net capital flow variables, as opposed to gross capital inflows and outflows. The frequent inconsistencies in the conclusions of numerous studies may be attributed to variations in variable selection and the lack of precise definition of the chosen variables within the models.
The primary objective of this study is to ascertain the appropriate capital flow measure for empirical research of these phenomena. The study was conducted on EU member states and it examined the stability and procyclicality of gross inflows and outflows, as well as net capital flows.
The findings strongly suggest that gross capital flow categories should be employed in such analyses, and the conventional reliance on net capital flow variables should be abandoned.
References
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Tajana Toš
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The authors retain rights under the Creative Commons Attribution-ShareAlike 4.0 International CC BY-SA 4.0. Authors assign copyright or license the publication rights in their articles, including abstracts, to MIP=JIBM. This enables us to ensure full copyright protection and to disseminate the article, and of course MIP=JIBM, to the widest possible readership in electronic format. Authors are themselves responsible for obtaining permission to reproduce copyright material from other sources.
