Capital Flows to Latin America: Is There Evidence of Contagion Effects?

The issue of "spillover or contagion" effects has acquired renewed importance in light of the Mexican crisis in December 1994 and the effect that this event has had on other emerging market economies. Relatively little empirical analysis exists on how small open economies are affected by economic developments in their neighbors and what role financial markets play in the transmission of disturbances. This paper attempts to fill that gap by examining recent developments in emerging equity markets in Asia and Latin America and longer term trends and cycles in capital flows to Latin American economies and their sensitivity to events in the larger countries in the region.