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Growing Up With Capital Flows

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Author Info
Ashoka Mody
Antu Panini Murshid

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Abstract

In a sample of 60 developing countries, we find evidence of a strong-almost one-to-one-relationship between capital inflows and domestic investment. However, this relationship has evolved over time. While growing financial integration with the rest of the world has increased access to foreign private capital, the relationship between foreign capital and domestic investment has weakened, reflecting changes in the composition of inflows, offsetting outflows, and increased foreign-currency reserve requirements. In contrast, better policies have not only brought in more capital but also, especially for foreign direct investment, have tended to strengthen the relationship between foreign capital and domestic investment.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/75.

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Length: 32 pages
Date of creation: 16 May 2002
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Handle: RePEc:imf:imfwpa:02/75

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Keywords: Capital flows ; Domestic investment ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Reinhart, Carmen & Leiderman, Leonardo, 1994. "Capital inflows to Latin America," MPRA Paper 13406, University Library of Munich, Germany. [Downloadable!]
  2. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August. [Downloadable!] (restricted)
  3. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July. [Downloadable!] (restricted)
    Other versions:
  4. Joshua E. Greene, 2002. "The Output Decline in Asian Crisis Countries: Investment Aspects," IMF Working Papers 02/25, International Monetary Fund. [Downloadable!]
  5. Reinhart, Carmen & Reinhart, Vincent, 1998. "Some lessons for policy makers who deal with the mixed blessing of capital inflows," MPRA Paper 7123, University Library of Munich, Germany. [Downloadable!]
  6. Gian Maria Milesi-Ferretti & Vittorio Grilli, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Working Papers 95/31, International Monetary Fund.
  7. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August. [Downloadable!] (restricted)
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  8. Carlos Arteta & Barry Eichengreen & Charles Wyplosz, 2001. "When Does Capital Account Liberalization Help More than It Hurts?," NBER Working Papers 8414, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
    Other versions:
  10. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1999-1), pages 143-180. [Downloadable!]
  11. Haque, N. U. & Pesaran, M. H. & Sharma, Sunil, 1999. "Neglected Heterogeneity and Dynamics in Cross-country Savings Regressions," Cambridge Working Papers in Economics 9904, Faculty of Economics, University of Cambridge. [Downloadable!]
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  12. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May. [Downloadable!] (restricted)
  13. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May. [Downloadable!] (restricted)
  14. Menzie Chinn, 2002. "The Compatibility of Capital Controls and Financial Development: A Selective Survey and Empirical Evidence," Finance Working Papers 385, East Asian Bureau of Economic Research. [Downloadable!]
  15. Lucio Sarno & Mark P. Taylor, . "Hot Money, Accounting Labels and the Persistence of Capital Flows to Developing Countries: An Empirical Investigation," Economics and Finance Discussion Papers 97-07, Economics and Finance Section, School of Social Sciences, Brunel University.
  16. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November. [Downloadable!] (restricted)
  17. Swamy, P A V B & Arora, S S, 1972. "The Exact Finite Sample Properties of the Estimators of Coefficients in the Error Components Regression Models," Econometrica, Econometric Society, vol. 40(2), pages 261-75, March. [Downloadable!] (restricted)
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