Equity and bond flows to Latin America and Asia: The role of global and country factors

This paper investigates the factors motivating the large capital flows to a number of developing countries in recent years. We use monthly US capital flows to nine Latin American and nine Asian countries to analyze the behavior of bond and equity flows. Employing a panel data approach, we find that although global factors-the drop in US interest rates and the slowdown in US industrial production-are important in explaining capital inflows, country-specific developments are at least as important, especially for Asia. We also find that equity flows are more sensitive than bond flows to global factors, but that bond flows are generally more sensitive to a country's credit rating and secondary market debt price. (C) 1998 Elsevier Science B.V.