ERF 26th Annual Conference
Developing Countries’ Access to International Capital Markets: What Constraint MENA?
No.
ERF26_204
Publisher
ERF
Date
September, 2020
Topic
G1. General Financial Markets
F3. International Finance
F2. International Factor Movements and International Business
O1. Economic Development
The paper investigates at first factors that affect developing countries access to international capital markets. Then, we investigate whether MENA countries have different determinants compared to other developing regions for a subsample of countries in the MENA region. We also exploit the Arab Spring incidence to measure the short-run effects of political shocks using a variance decomposition and impulse response analyses for a sub-sample of MENA countries. The objective is to explore why MENA has been unsuccessful in securing for itself a significant share of financial flows proportional to its size and the limited ability to tap the international capital markets more frequently relying heavily on other sources of finance. Our findings show that trade openness and GDP per capita, which measures links of a given country with the world and vulnerability, respectively, have a different impact on MENA and that domestic factors affects developing as well as MENA countries differently. While, we find that external factors have no significant impact on debt inflows into MENA. This imply that MENA is different in the sense that domestic policies affect debt inflows into region and not the external factors. This lend evidence to the importance of domestic policies as an important determinant of debt flows into MENA. In addition, we find that the Arab spring has led to a drop in financial flows to the MENA region and that country risk characteristics tend to affect direction of flows during crisis. The findings also show that a positive shock to political quality would increase inflows which lends evidence to the importance of political quality as an important determinant of market access.
Authors
Shereen Attia
Senior Researcher and Consultant