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Capital Flows and Endogenous Growth

Author

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  • Evgenij Komarov

    (Center of Economic Research, ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, Switzerland)

Abstract

So-called "capital flows", i.e. of physical capital from relatively poor to rich countries, are a new phenomenon with yet unclear impact. We develop a unified framework incorporating economic institutions, human capital and physical capital to study the interaction of international capital ows and growth. Analytically, we study conditions under which a positive change of a country's economic institutions can attract inflows of physical capital from abroad, leading to long-term growth via the accumulation of human capital. Our mechanism shows how a small initial difference in the level of institutions can lead to substantial divergence in income over time. We derive conditions under which a country receives in flows of capital over time and increases its investment in human capital. Finally, we provide simulations to illustrate our results.

Suggested Citation

  • Evgenij Komarov, 2021. "Capital Flows and Endogenous Growth," CER-ETH Economics working paper series 21/365, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:21-365
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    References listed on IDEAS

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    More about this item

    Keywords

    Growth; International Capital Flows; Inequality; Institutions; Human Capital;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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