Determinants of capital flows: an empirical approach from the Ecuador´s economy

Abstract

The variability of capital flows is conditioned by external factors, linked to the performance of the economies, but also to internal factors linked to policies to attract foreign capital, so that, during the last decades, the behavior of capital flows capital have become an important element for forecasting the economic performance of countries, which has motivated greater and better efforts to understand its dynamics and identify its main determinants in order to take advantage of its benefits and control its risks in the most effective way possible. The paper aims to identify and analyze the main factors that explain the variations in capital flows in the context of the Ecuadorian economy during the period 1990 - 2020, such determinants, according to the literature, the empirical evidence and available data are gross domestic product, country risk, international reserves, foreign direct investment, exports, and external debt. By estimating a multivariate linear regression model for time series, using the ordinary least squares method, it is determined that gross domestic product, international reserves and foreign direct investment have a positive effect and country risk a negative effect. statistically significant, on capital flows. As is evident, capital flows in Ecuador are determined by endogenous and exogenous factors that promote the entry and, on the other hand, encourage the exit of capital from the economy.