VOLATILITY OF FINANCIAL FLOWS AND CAPITAL FLIGHT: BRAZILIAN EXTERNAL VULNERABILITY BETWEEN 1995 AND 2010

Resumen

The surge of capital inflows in the post-crisis period prompted proposals for reassessing capital flow volatility in developing countries. Based on that, this article analyzes Brazilian external vulnerability from 1995 to 2010. The objective is twofold: 1) to measure Brazil’s capital-flow volatility; and, 2) to apply and analyze two measures of capital flight. Specifically, it aims to compare the volatility and capital flight measures in order to evaluate external vulnerability. While financial flow volatility may capture moments of waves of massive capital inflows and the transition to sharp reversals, capital flight may indicate the sensitivity of capital flows toward Brazil due to unstable factors and external shocks. In this sense, large capital flight from Brazil of the kind that occurred during the 2008 international financial crisis can be caused by high capital-flow volatility.