The Link Between Foreign Capital Flows and Housing Prices: A panel data estimation


  • Harold Vásquez Ruíz Banco Central de la República Dominicana

Palabras clave:

Housing Prices, Foreign Capital Flows, Savings Glut Hypothesis


This paper uses a quarterly panel data set, spanning the period from1990 to 2012, of 45 countries that includes both developed and undeveloped economies to determine the effect of capital flows on housing prices. We distinguish among different types of capital flows— i.e., FDI flows, portfolio equity and debt investment flows, and other flows—to assess the contribution of these categories to housing price dynamics in developed and undeveloped markets. The results show that capital flows positively and significantly affect house prices, with the magnitude of this effect being large for the portfolio investment category. Further, economic growth, the country’s exchange rate regime, the level of financial deepness, and the level of trade and capital account openness also determine housing prices.