MARKET OF FINANCIAL SERVICES

BOHDAN Tetiana ¹

¹NGO “Growford Institute”
OrcID ID : https://orcid.org/0000-0002-6133-5336

Global and country-specific factors of foreign capital flows and their implications for the economy of Ukraine

Author investigates the effects of global financial market volatility on the spreads for emerging market economies and the effects of country-specific risks on the bond spread “EMBI-Ukraine”, which, in its own turn, determines the volume of foreign capital inflows to the economy of Ukraine. The author has derived the following estimates: an increase in volatility index VIX by 1 % is associated with a rise in spread “EMBI-Ukraine” by 38 b. p.; international reserves accumulation equivalent to 1 % of gross external debt by National bank of Ukraine is associated with a decline of spread by 19,4 b. p. Proposed models and analytical framework allow to forecast the inflows of debt-creating capital to Ukrainian economy on the basis of “EMBI-Ukraine” spread (increase in spread by 100 b. p. results in erosion of foreign capital inflow by 0,5 % of GDP). On the basis of own empirical research, the author argues that foreign loans effect domestic investment activity in Ukraine, real interest rates at the domestic market and real effective exchange rate. The author has estimated that net foreign borrowing of corporations and banks equivalent to 1 % of GDP were associated with 1) acceleration of a fixed capital formation by 0,86 %, 2) real interest rates decline on the baking loans in Ukraine by 0,17 %, 3) increase (appreciation) of the cumulative REER index of hryvna by 0,15 p. p. Pro-cyclical impact of foreign capital flows on the real GDP dynamics in Ukraine is revealed. The author argues that domestic investment climate is to be improved and macroeconomic stability is to be restored in order to attract the foreign capital that could contribute to sustainable economic growth of Ukraine.

Keywords: foreign capital flows, global market volatility, “EMBI Global” spread, investments, real interest rates, hryvna’s real effective exchange rate (REER).

JEL: C15, F21, F30, F35.

BOHDAN T. . Global and country-specific factors of foreign capital flows and their implications for the economy of Ukraine / T. . BOHDAN // Фінанси України. - 2015. - № 7. - C. 39-56.