Global capital flows: overview

UNCTAD short courses for delegates, September 2013, Palais des Nations.

By Diana Barrowclough, Senior Economist Division on Globalization and Development Strategies, UNCTAD . 1

Trends (1) Highly volatile global capital flows

Ne t capital inflow s , billions of dollars

14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 1976 1981 1986 1991 1996 2001 2006 2011 Dev eloped economies Dev eloping economies Transition economies 9 8 7 6 5 4 3 2 1 0 1978

Net private capital inflows to e m e rging e conom ie s , pe r ce nt of GDP

1984 1990 1996 2002 2008 2012 Net priv ate inf lows Net priv ate inf lows, excl. equity outf lows Source: UNCTAD Trade and Development Report 2013, Ch1

Trends (2) Volatile net private capital inflows to EMs

A. In billions of curre nt dollars

1 400 1 200 1 000 800 600 400 200 0 1978 1984 1990 1996 2002 2008 2012 Net priv ate inf lows

B. As a pe rce ntage of GDP

9 6 5 8 7 4 3 2 1 0 1978 1984 1990 1996 2002 2008 2012 Net priv ate inf lows, excl. equity outf lows Source: UNCTAD Trade and Development Report 2013, Ch3

Why (1)? Correlated price trends in global asset markets

1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 World equity index World commodity index Currency index Source: UNCTAD Trade and Development Report 2013, Ch1

Why (2)? Asset composition of the ECB and the US Fed. Reserve

A. Europe an Ce ntral Bank

(Billions of euro)

3 500 3 000 2 500 2 000 1 500 1 000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gold and gold receiv ables Securities (incl. securities held for monetary policy purposes) Lending to euro area credit institutions Other assets Total assets

B. Unite d State s Fe de ral Re s e rve

(Billions of dollars)

3 500 3 000 2 500 2 000 1 500 1 000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gold and other assets Treasury securities (notes and bonds) Mortgage-backed securities Central bank liquidity swaps Total assets Source: UNCTAD Trade and Development Report 2013, Ch3

Why (3)? Monetary policies in developed countries did not lead to more domestic credit, but contributed to international financial instability

MONETARY BASE AND BANK CLAIMS ON THE PRIVAT SECTOR, 2001 –2012

(Per cent of GDP )

A. Unite d State s B. Euro are a

70 60 50 40 30 20 10 0 2001 2003 2005 2007 2009 25 20 15 10 5 2011 2012 0 160 140 120 100 80 60 40 20 0 2001 2003 2005 2007 2009 50 40 30 20 10 2011 2012 0 Bank claims on priv ate sector Monetary base (right scale) Source: UNCTAD Trade and Development Report 2013, Ch3

Why (4)? Net lending/borrowing US & Eurozone

A. Unite d State s B. Euro are a

10 5 0 10 5 0 -5 -10 -5 -10 -15 2000 2002 2004 2006 2008 2010 2012 -15 2000 2002 2004 Households and non-prof it institutions serv ing households Non-f inancial business Financial business Gov ernment Rest of the world 2006 2008 2010 2012 Source: UNCTAD Trade and Development Report 2013, Ch3

A. Unite d State s

2 500 2 000 1 500 1 000 500 0 - 500 -1 000 -1 500 -2 000 2005 2006 2007 2008 2009 2010 2011 2012

C. De ve loping countr ie s

2 000 1 500 1 000 500 0 - 500 -1 000 -1 500 -2 000 -2 500 -3 000 2005 2006 2007 2008 2009 2010 2011 FDI: incurrence of liabilities Portf olio: incurrence of liabilities Financial deriv ativ es: incurrence of liabilities Other inv estment: incurrence of liabilities Net errors and omissions Current account balance

B. Eur ope an Union

8 000 6 000 4 000 2 000 0 -2 000 -4 000 -6 000 -8 000 2005 2006 2007 2008 2009 2010 2011 2012

D. Le as t de ve lope d countr ie s

40 30 20 10 0 -10 -20 -30 -40 2005 2006 2007 2008 2009 2010 2011 FDI: acquisition of f inancial assets Portf olio: acquisition of f inancial assets Financial deriv ativ es: acquisition of f inancial assets Other inv estment: acquisition of f inancial assets Change in reserv e assets Capital account balance

Some implications for development (1) - Capital flows management in context

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Financing the real economy for meeting the new patterns of demand – hampered or hindered by global capital flows?

Investment and access to financing are needed, to fund expansion of productive capacities and their adaptation to new demand patterns.

Key challenges:  Capital flows management : pragmatic exchange-rate management and capital-account management needed to reduce vulnerability to external financial shocks  Domestic financial systems need to channel credit towards productive investment in the real sector.

Implications (2) Sources of investment finance (%)

Developed Europe Emerging Europe Africa LAC Developing Asia Developing Oceania Transition economies

# countries (firms)

5, (3354)

Internal finance

68 10, (3196) 58 44, (17,971) 31, (14,657) 24, (20,477) 58 81 59 5, (619) 67 17, (10,507) 53

Bank finance

21 25 9 21 20 26 16

Trade credit

3 5 3 10 3 3 4 2 4 3

Equity or stock sales

5 7 9 7

References and further information

• Trade and Development Report 2013.

• UNCTAD conference: Capital Account regulations and Gobal Economic Governance, October 3-4, 2013 • WTO Working session: Capital Account Regulations and the Trading System, October 3, 2013 • UNCTAD Development Account project.