THE EFFECTS OF FLIGHT ON GROWTH AND INVESTMENT IN EMERGING MARKETS

We investigated the impact of massive foreign-asset purchases by domestic agents (flight) on domestic countries' real GDP growth and investment by employing diverse generalized method of moments estimators. Flight is a matter for concern because it may indicate that domestic investors are fleeing domestic markets. However, our results show that flight is only harmful if there are not enough capital inflows from foreign investors. These results suggest that domestic investors do not significantly substitute foreign assets for domestic assets and, even if they do, domestic firms may not be severely damaged if they can borrow from nonresidents.