Monetary policy and capital flow implications on economic growth in BRICS countries

Abstract

This study investigates monetary policy and capital flow implications on economic growth in emerging economies so-called BRICS countries between 2001 and 2015. The causality results revealed a unidirectional causality from foreign direct investment and broad money to total reserves, real GDP per capita and broad money to total reserves, broad money to total reserves and real interest rates as a percentage, foreign direct investment and commercial bank and another lending, total changes in external debt stock and commercial bank and another lending, foreign direct investments and real interest rates as a percentage, foreign direct investment and domestic credit provided by the financial sector, and domestic credit provided by the financial sector and real GDP per capita. A bidirectional causality holds for domestic credit provided by the financial sector and broad money to total reserves, and real interest rates as a percentage and commercial bank and another lending. The results suggest that policies should include restrictions on capital flows, targeted monetary policy for both money supply and interest rates, an external debt ceiling, broadening financial regulations, and domestic institutional strengthening.