Читать книгу Putin's Russia - Группа авторов - Страница 26

Capital flows are an important link between the domestic economy and global markets in any country. The role of capital flows is not only to finance investments, transfer knowledge and generate growth at home, which is the main focus here, but also to facilitate consumption smoothing and risk management. The latter reasons for international capital flows are likely to have been highly important to understand capital flows between Russia and the rest of the world. The composition and magnitude of flows can provide important signals on how both residents and foreign entities view the growth prospects of a country as well as the functioning of financial markets and the institutions that protect property rights.⁷ In emerging markets, sudden reversals of capital flows (sudden stops) have been shown to be the costliest shock that these countries face in terms of loss of income at the macro level (Becker and Mauro, 2006).⁸ This suggests that avoiding sudden stops is a key factor for long-term growth and macroeconomic stability.

Figure 5:Private sector capital flows.

Source: Central Bank of Russia.

Figure 5 shows private capital flows in the form of foreign direct investments (FDIs) and portfolio, loans and other flows (PLO).⁹ Inflows and outflows are shown separately for each category, and note that for the PLO flows, both inflows and outflows can (and do) take on negative values. A number of observations are worth mentioning here. First of all, the PLO flows are both greater in absolute terms and much more volatile than FDI flows. This is very much in line with the discussion about “hot money” flows to emerging markets that say that FDI flows (“good cholesterol”) are more stable and beneficial for growth, while portfolio flows and loans (“bad cholesterol”) are volatile and associated with the problems of sudden stops discussed earlier (see Fernandez-Arias and Hausmann, 2000). The Russian story seems to be in line with this reasoning, given that large portfolio and loan inflows are in many periods followed by equally large outflows. FDI flows follow a different pattern where inflows and outflows are moving up and down at the same time. This indicates that there are common factors driving both FDI inflows and outflows but no sign that FDI inflows lead to outflows shortly after.

Figure 5 does not provide a very clear picture of how net capital flows have developed over time and what cumulative implications are at the macro level. Figure 6 therefore shows the cumulative net capital flows for FDI, portfolio and loans, and errors and omissions as well as the grand total of private sector capital flows.

Between 1995 and the first quarter of 2018, 700 billion dollars left Russia. This is twice as much as all of the fixed capital investments in 2017 and could obviously have boosted growth significantly if it had been invested in Russia instead. That does not mean that zero flows would have been optimal for the investors making these decisions, but it shows clearly that these flows are extremely important for the macroeconomic development of Russia. Most of the capital left in the form of portfolio flows and loans, but at the end of the sample, all three categories contribute to the outflows. FDI was for a long time the only component that recorded a cumulative net inflow over the period, but after the global financial crisis, there has been a steady outflow in this category as well and these outflows accelerated in 2014. More generally, the global financial crisis represents a very clear shift in capital flows, and outflows then accelerated when sanctions were introduced in 2014 before there was some levelling off in 2018.

Figure 6:Capital outflows from private sector.

Source: Central Bank of Russia and author’s calculations.

The question is then what factors may be behind these capital flows. In principle, we should expect flows to be correlated with the returns and risk on investment in Russia versus the rest of the world. There are different ways of trying to gauge expected returns and risk, but some relatively straightforward measures can be derived from the stock markets in Russia and abroad. Here, we use daily data on the Russian dollar index RTS and the S&P500 index from the US stock market. We also add daily data on oil prices since this is an important determinant of growth in Russia and also a source of foreign capital that can either be invested at home or abroad. From these data, we compute the daily returns and rolling 20- and 60-days standard deviations of our series and take quarterly averages of these measures to generate series with the same frequency that we have for capital flows. This then allows us to run a regression with net capital outflows being explained by the returns and volatility of the Russian and US financial investments as well as oil that are shown in Table 3.

Table 3:Correlates of private capital flows.

Note: Volatility diff is RTS volatility minus S&P volatility and Return diff is S&P return minus RTS return, so both coefficients are expected to be positive.

The regression results are quite interesting. The most statistically significant variable is the volatility on the Russian market, which has the expected positive sign that indicates that increased volatility increases net capital outflows. The other statistically significant variable is returns in the US market, but there is no offsetting effect from returns in the Russian market. The oil price variables are also not significant, which is perhaps a bit surprising given their importance for growth and investments. However, it could be the case that high oil prices both generate foreign exchange earnings in Russia that could leave the country as capital flows and encourage inflows into the Russian economy, and this estimate reflects that these two forces cancel each other out.

In principle, the relative volatility and return between the domestic and foreign market should matter for flows, and if the regression is run on these variables instead, the importance of volatility is further enhanced while the return variable becomes statistically insignificant. However, the overall explanatory power of such a regression is greatly reduced and is the reason the more detailed specification discussed earlier is preferred. The exact causal links and mechanisms cannot be investigated fully in this setting since there may be an effect going from capital flows from Russia to volatility in the Russian stock market. In the end, however, it is clear that volatility is an important correlate of capital flows that warrant a closer look.