ANALYSIS OF THE IMPACT OF CAPITAL FLOWS ON ECONOMIC GROWTH AND SYNCHRONIZATION OF BUSINESS CYCLES

Published June 24, 2024 | Version v1

Preprint Open

1. The Russian Presidential Academy of National Economy and Public Administration

In this paper we study existing works about factors of capital mobility, as well as the

impact of capital flows on the economic growth and synchronization of business cycles. The

relevance of this study arises from the prospects of deepening financial integration of the Eurasian

Economic Union member countries and the need to identify the mechanisms and direction of the

impact of integration processes on the economies of the member countries. The purpose of this

study is to identify, based on a review of theoretical and empirical studies, the key mechanisms of

the impact of financial integration on economic growth and the process of convergence within the

economic union, as well as the synchronization of business cycles between countries. The basic

methods are system analysis, synthesis, generalization of existing empirical and theoretical

studies. The results of this study allow us to formulate an approach to investigate the process of

financial integration between the EAEU member countries, to identify and assess the performance

of channels of capital mobility impact on economic processes in the short and long term depending

on the types of cross-border capital flows. The conclusions of the study on economic growth are

that even within a single channel, the nature of the impact of capital mobility on economic growth

may vary. Nevertheless, capital flows in the form of direct investment are the most likely to be

found to have a positive impact on economic growth, as such flows are most often associated with

productive investment. On the business cycle side, it can be concluded that the nature of the impact

of capital mobility on business cycle synchronization is ambiguous, and there are arguments both

in favor of financial integration leading to business cycle synchronization and desynchronization.

However, FDI is more likely to contribute to cycle synchronization because it stimulates

international value chains and the activities of multinational corporations that can share profits and

losses among affiliates, as well as facilitating technology transfer.

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