Skip to main content
SpringerLink
Log in

Capital Flow Surges and Sudden Stops Impact on the Sectorial Composition of Employment and Productivity Growth

  • Chapter
  • First Online:
Labour Market and Fiscal Policy Adjustments to Shocks

  • 436 Accesses

Abstract

Evidence shows that capital inflow surges shocks exert a positive effect on economic growth. At the same time, they lead to sectoral employment reallocation. Some sectors gain while others lose employment shares. In addition, capital flow surge episodes are linked to the expansion of employment shares in the non-tradable sectors, in particular the financial services and construction sectors. However, the positive responses are at the expense of sectors that produce tradable goods, in particular the manufacturing and mining sectors.

 An unexpected positive net portfolio flow volatility shock significantly reduces the gross value added of the manufacturing, agriculture and construction sectors and productivity growth. But the financial sector employment and gross fixed capital formation increase following a capital flow surges episode shock. The implication is that the major recipient and sector that gains the most during episodes of capital flow surges is the financial sector. Large capital inflows also coincide with a shift of labour and capital out of the manufacturing sector. The reallocation of investment is a general feature of large capital inflows.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Institutional subscriptions

Notes

  1. 1.

    See Gordon (2012), Fernald (2014) and Reifschneider et al. (2015) amongst others.

  2. 2.

    This is because the US is responsible for a large part of the world’s technological innovation, and US firms operate at the production-possibility frontier in many industries.

  3. 3.

    Furthermore, monetary policy , as it lowers the neutral real interest rate, implies a lower neutral nominal interest rate for a given inflation target.

  4. 4.

    As such, this strand of literature suggests that certain sectors are more sensitive to capital flow surges, sudden stops and elevated volatility relative to others. Benigno et al. (2015) found evidence of reallocation of labour from manufacturing, which is largely a tradeable sector, during a capital inflow episode.

  5. 5.

    See, Forbes and Warnock (2011) for the details of the identified episodes. Forbes and Warnock (2012) using gross capital flows, identified various capital flow episodes which include surges and sudden stops for several countries, including South Africa.

  6. 6.

    We note that this could possibly explain part of the decline in the employment share as presented in the previous section.

References

  • Benigno, G., Converse, N., & Fornarox, L. (2015). Large capital inflows, sectoral allocation and economic performance. Journal of International Money and Finance, 55, 60–87.

    Article  Google Scholar 

  • Borio, C., Kharroubi, E., Upper, C., & Zampolli, F. (2015). Labour reallocation and productivity dynamics: Financial causes, real consequences (BIS working papers no. 534).

    Google Scholar 

  • Fernald. (2014). Productivity and potential output before, during, and after the great recession (Working paper series 2014–15). Federal Reserve Bank of San Francisco.

    Google Scholar 

  • Forbes, K. F., & Warnock, F. E. (2011). Capital flow waves: Surges, stops, flights, and retrenchment (NBER working paper 17351). http://www.nber.org/papers/w17351

  • Forbes, K. J., & Warnock, F. E. (2012). Capital flow waves: Surges, stops, flight, and retrenchment. Journal of International Economics, 88(2), 235–251.

    Article  Google Scholar 

  • Gordon. (2012). Is U.S. economic growth over? Faltering innovation confronts the six headwinds (NBER working paper 18315). http://www.nber.org/papers/w18315

  • Reifschneider, D., Wascher, W., & Wilcox, D. (2015). Aggregate supply in the United States. IMF Econ Review, 63, 71–109.

    Article  Google Scholar 

  • Yellen, J. L. (2016, October 14). Macroeconomic research after the crisis. Remarks by at “The elusive ‘great’ recovery: Causes and implications for future business cycle dynamics” 60th annual economic conference sponsored by the Federal Reserve Bank of Boston, Boston, MA.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. South African Reserve Bank, Pretoria, South Africa

    Nombulelo Gumata & Eliphas Ndou

Authors
  1. Nombulelo Gumata
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Eliphas Ndou
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

Copyright information

© 2017 The Author(s)

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Gumata, N., Ndou, E. (2017). Capital Flow Surges and Sudden Stops Impact on the Sectorial Composition of Employment and Productivity Growth. In: Labour Market and Fiscal Policy Adjustments to Shocks. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-66520-7_15

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-66520-7_15

  • Published:

  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-66519-1

  • Online ISBN: 978-3-319-66520-7

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation