Frontier and Emerging Markets: A Perspective from Portfolio Flows and Financial Integration
Frontier and Emerging Markets: A Perspective from Portfolio Flows and Financial Integration

Summary/Abstract: This paper investigates to what extent low-income developing countries (LIDCs) characterizedas frontier markets (FMs) have begun to be subject to capital flows dynamics typicallyassociated with emerging markets (EMs). Using a sample of developing countries covering theperiod 2000–14, we show that: (i) average annual portfolio flows to FMs as a share of grossdomestic product (GDP) outstripped those to EMs by about 0.6 percentage points of GDP;(ii) during years of heightened stress in global financial markets, portfolio flows to FMs driedup like those to EMs; and that (iii) FMs have become more integrated into international financialmarkets. Our findings confirm that, in terms of portfolio flows, FMs have become more similarto EMs than to the rest of LIDCs and are therefore more vulnerable to swings in global financialmarkets conditions. Accordingly, it is important to have in place frameworks to strengthen FMs’resilience to adverse capital flows shocks.

• Details
• Contents