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Fueling or Following Growth? Causal Effects of Capital Inflows on Recipient Economies

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  • Mr. Nicolas End

Abstract

Identifying the causal impact of capital inflows on growth and development has been a perennial challenge. This paper proposes a new way to investigate the effect of capital flows on recipient emerging and developing economies, using shift-share instruments and correcting for indirect flows. It finds a significantly beneficial effect of loan and bond inflows on economic performance, which materializes after a few years. It also finds some confirmation that the absorptive capacity of recipient economies depends on their fundamentals.

Suggested Citation

  • Mr. Nicolas End, 2024. "Fueling or Following Growth? Causal Effects of Capital Inflows on Recipient Economies," IMF Working Papers 2024/015, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/015
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