Essays on international reserves and capital flows

This dissertation studies the issues on international reserves and capital flows. In Chapter One, motivated by the observed international reserve hoarding behavior in the post-1997 crisis period, we explore the Mrs Machlup's wardrobe hypothesis and the related keeping-up-with-the-Joneses argument. It is conceived that, in addition to psychological reasons, holding a relatively high level of international reserves reduces the vulnerability to speculative attacks and promotes growth. A stylized model is constructed to illustrate this type of hoarding behavior. The relevance of the keeping-up-with-the-Joneses effect is examined using a few plausible empirical specifications and data from 10 East Asian economies. Panel-based regression results are suggestive of the presence of the Joneses effect, especially in the post-1997 crisis period. Individual economy estimation results, however, show that the Joneses effect varies across economies.;Chapter Two investigates the empirical determinants of China's outward direct investment (ODI). It is found that China's investments in developed and developing countries are driven by different sets of factors. Subject to the differences between developed and developing countries, there is evidence that both market-seeking and resource-seeking motives drive China's ODI, and the Chinese exports to developing countries attract China's ODI. We also find that China's international reserves promote its ODI and the Chinese capital tends to agglomerate. Similar results are obtained using alternative ODI data. I do not find substantial evidence that China invests in African and oil-producing countries mainly for their natural resources.