Prague Economic Papers 2003, 12(3):195-216 | DOI: 10.18267/j.pep.214

Economic and monetary union accession and capital flows

Jiří Jonáš
International Monetary Fund, Office 11-302, 700 19th Street NW, Washington D.C. 20431 (e-mail: jjonas@imf.org).

The paper discusses the prospects for capital inflows to the Czech Republic before Economic and Monetary Union accession. It reviews the potential costs and benefits of capital flows and the history of capital flows to the Czech Republic, before turning to future capital inflows. It notes that different theoretical models provide different predictions about future capital inflows. To get further insight, the paper discusses the future capital inflows from the perspective of nonresidents' supply of external savings and residents' demand for external borrowing and from the perspective of external vulnerability related to large foreign direct investment (FDI) inflow. It concludes that FDI is likely to decline somewhat in the future, but increasing sovereign borrowing needs could lead to higher inflow of portfolio capital. The final section discusses the potential for capital inflows resulting from the so-called convergence plays and concludes that there is presently little incentive for convergence-play related capital inflows.

Keywords: foreign direct investment, EMU accession, capital flows, external vulnerability, convergence play
JEL classification: F21, F32, F36, G15

Published: January 1, 2003  Show citation

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Jonáš, J. (2003). Economic and monetary union accession and capital flows. Prague Economic Papers, 12(3), 195-216. doi: 10.18267/j.pep.214
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