Quantile Regression Evidence on Capital Flows to European Transition Economies: The Role of Institutions and Global Risk (1997–2022)

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This paper examines the drivers of portfolio equity and debt flows to European transition economies using an instrumental-variables quantile regression approach. Results show that the importance of global “push” and domestic “pull” factors varies across the flow distribution. Among domestic variables, government effectiveness emerges as robust explanatory factor: its association with both equity and debt inflows is positive and statistically significant from the median to the upper quantiles, but weak at the lower quantile. Moreover, the magnitude of its effect increases toward the upper tail, indicating a crucial role in enhancing investor confidence in sovereign debt markets during high-inflow episodes.