Surges robustly tend to happen in countries with natural resource abundance. Primary commodity exporters may be attractive to foreign investors that may be related to the evolution of commodity prices such as fuel, mineral ores and metals. Surges are more likely to occur in countries with greater financial openness and that these episodes are mostly driven by surges in debt rather than in equity inflows.

This paper consists of 5 sections. After the introduction in Section 1, Section 2 reviews the literature on the surges in capital inflows while Section 3 describes the data and methodology. Section 4 briefly reviews the econometric methodology and presents the empirical evidence with limited dependent variable techniques while Section 5 concludes.

# **2. Literature Review**

This section reviews three different strands of the literature on the drivers of capital inflows. First, we look at the empirical evidence on the ‘pull’ and ‘push’ factors that determine capital flows. Second, we review the evidence on the relationship between productivity differentials and the direction of foreign capital inflows. The third strand of the literature examines the drivers and consequences of extreme movement in capital flows by, more specifically, focusing on empirical studies about surges in capital inflows. Therefore, we review the research on the drivers and consequences of massive inflows of foreign capital —labeled as either capital flow bonanzas, capital flow booms or surges in capital inflows. Most of these studies look at entry of net inflows whereas most recent studies analyze surges of gross inflows.

The first strand of the empirical literature that we review in this Section focuses on the internal and external drivers of capital inflows into developing countries —this is what Fernandez-Arias (1996) defines as ‘pull’ and ‘push’ factors, respectively. Push factors, on the one hand, comprise indicators such as growth in major trading partners, the world real interest rates, return and volatility of global stock markets, global risk aversion and indicators of global policy uncertainty, among others. Pull factors, on the other hand, include growth in domestic economic activity, the soundness of the macroeconomic policy framework, and the quality of institutions, among others. Overall, he finds that push factors play a large role in driving capital inflows, consequently, developing countries are vulnerable capital inflow reversals —as the latter are mainly driven by exogenous external shocks. In this research he uses quarterly data for 13 middle-income countries (MICs) from 1989q1 through 1993q2to examine whether portfolio (equity and debt) inflows to MICs are driven by pull or push factors. He finds that surges to MICs are explained by improvements in country creditworthiness while developing country creditworthiness is largely driven by external factors, especially, the world interest rates. Therefore, surges in inflows in MICs are largely pushed by low returns in developed countries rather than pulled by country-specific factors.

Fratzscher (2012) evaluates the drivers of capital flows during the 2007-8 global and the postfinancial crisis recovery using mutual funds data across 50 countries. His data set comprises 6