Challenges of Effective Capital Inflow Management in the Modern Geopolitical Context (Case Study of the Republic Of Armenia)

Abstract

In 2022, changes in the geopolitical situation led to a significant influx of labor and capital into the Republic of Armenia from countries of the Eurasian Economic Union (EAEU). However, this influx was rather chaotic, revealing a lack of long-term strategy on the part of Armenia’s economic authorities to manage the changes in the country's economic structure brought about by the increase in migrants, business relocations, and the growth of investments through various channels. This article provides a comprehensive analysis of the economic situation and the mechanisms for capital management to maximize the positive effects and minimize potential risks. The study includes an analysis of various aspects of capital inflows and their impact on Armenia’s economic growth, such as foreign direct investment, remittances, and other financial flows. The results indicate that capital inflows have contributed to improving the country’s external position, reducing the current account deficit, and increasing international reserves. The strengthening of the Armenian dram created favorable conditions for investments but complicated the situation for exporters. Additionally, there was an increase in economic lending, particularly in the mortgage sector, and an improvement in bank profitability. The analysis, using the SVAR model, allowed for an examination of the impact of structural shocks on economic indicators such as interest rates, exchange rate stability, and the current account balance.