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Increasing Returns, Institutions, and Capital Flows

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  • Thomas Jack Snyder

    (College of Business, University of Central Arkansas, RM 211O, 201 Donaghey Ave, Conway, AR 72035, USA.)

Abstract

This paper empirically tests one prominent explanation for why capital has not flowed from the rich to the poor countries: institutions. In contrast to the study by Alfraro, Kalemli-Ozcan, and Volosovych in 2008, institutional quality does not explain the Lucas Paradox. Like them, institutional variables are found to be a very important factor, but in contrast to their findings, initial Gross Domestic Product (GDP) still plays a role in capital flows. In addition, poor countries may have different determinants of capital flows from rich countries. The evidence suggests a threshold income level, where a country receives significantly more capital flows if given a sufficiently high income.

Suggested Citation

  • Thomas Jack Snyder, 2013. "Increasing Returns, Institutions, and Capital Flows," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(3), pages 285-308.
    • Handle: RePEc:pal:easeco:v:39:y:2013:i:3:p:285-308
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    Cited by:

    1. MULOWAYI, Francis K. & PINSHI, Christian P., 2023. "Lucas Paradox, Institutional Quality and Corruption: Evidence from D.R. Congo," MPRA Paper 117370, University Library of Munich, Germany.
    2. Olufemi A Aluko & Muazu Ibrahim, 2019. "Does institutional quality explain the Lucas Paradox? Evidence from Africa," Economics Bulletin, AccessEcon, vol. 39(3), pages 1687-1693.

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