Flow of international capital of institutional investors to Brazil: a study of push and pull factors

Abstract

There was a sharp increase in the flow of international capital to Brazil in the decade of 1990 after the debt crisis of the previous decade. An analysis of the factors influencing the flow of capital of institutional investors in the decade of l990 was made to evaluate the pull factors, related to the domestic scene, and the push factors, related to the global scene. Data was collected monthly between January 1993 and October 2001 from the Banco Central do Brasil, FGVDADOS, IBGE and Moody's. Over the long term the variable that best explained capital flow was the average spread related to the sovereign risk of Brazil as defined by Moody's. No significant conclusion was found for the short term. The average spread related to risk was crucial considering the perspective associated to the future qualification and willingness of the bond issuer to make full and timely payments of long term financial obligations as well as the perception related to the likelihood of default.