Determinants of capital flows and investigation of the effect of capital controls on capital flows: A study on selected countries

Capital flows such as foreign direct investments, portfolio investments, hot money movements, and external (push) and internal (pull) factors that are effective on short-term capital movements determine the direction of capital flows in the country's economy. Capital flows contribute to the development and growth of the country's economy, the current account, the payment of foreign debts, the reduction of the unemployment rate, and the cheapening of imported goods. However, as well as the contributions to the country's economy, speculative capital flows, especially portfolio investments, could have devastating effects. The fact that there is too much capital flow to a country as portfolio investment may contribute to the economic growth, but this growth is not sustainable. Additionally, such speculative capital flows may lead to an increase in the current account deficit and a decrease in the value of the domestic currency. The sudden change in the direction of portfolio investments causes financial crises in economies. Many researchers believe that speculative capital flows cause financial crises that are increasing in frequency and severity. As a result of this situation, economic administrations have implemented capital controls as a measure against the rapid change of direction capital flows and financial crises. In this study, the variables affecting capital flows and the effects of capital controls on capital flows were examined with panel regression analysis, using the data between 1995 and 2018 in 17 selected countries. As a result of the analysis, it has been determined that the current account balance, income per capita, GDP ratio of domestic credit, mine and metal exports, and natural resources are effective on capital flows.