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A Survey of the Econometric Literature on the Real Effects of International Capital Flows in Lower Income Countries

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  • J Benson Durham

Abstract

This review examines the empirical literature on financial flows and economic performance, with particular respect to foreign direct investment (FDI), foreign portfolio investment (FPI), and foreign bank lending (FBL). Few studies report unequivocal positive statistical relations between flows and performance. Instead, even generally benevolent perspectives on liberalisation suggest that lower income countries should exhibit sufficient 'absorptive capacity' vis-à-vis variables such as the initial level of income, education, or trade openness. Notably, lower income countries are less likely to meet such 'thresholds'. But, before drawing definitive conclusions, shortcomings beset inference from existing studies. For example, the literature ignores the initial level of financial development in host countries, a potentially important intervening variable. Also, previous results likely suffer from specification bias, as few studies produce a standard set of control variables.

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  • J Benson Durham, "undated". "A Survey of the Econometric Literature on the Real Effects of International Capital Flows in Lower Income Countries," QEH Working Papers qehwps50, Queen Elizabeth House, University of Oxford.
  • Handle: RePEc:qeh:qehwps:qehwps50
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    2. Patricia Hofmann, 2008. "Globalization and Technical Progress: Channels of Reciprocal Interaction A Literature Review," DEGIT Conference Papers c013_011, DEGIT, Dynamics, Economic Growth, and International Trade.
    3. Ladekarl, Jeppe & Zervos, Sara, 2004. "Housekeeping and plumbing: the investability of emerging markets," Emerging Markets Review, Elsevier, vol. 5(3), pages 267-294, September.
    4. Alexander Cobham, "undated". "Capital Account Liberalisation and Poverty," QEH Working Papers qehwps70, Queen Elizabeth House, University of Oxford.
    5. Khaled Elmawazini & Pranlal Manga & Sonny Nwankwo & Bader AlNaser, 2019. "Health gap between developed and developing countries: Does globalization matter?," Economic Change and Restructuring, Springer, vol. 52(2), pages 123-138, May.
    6. Elizabeth Asiedu, 2006. "Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability," The World Economy, Wiley Blackwell, vol. 29(1), pages 63-77, January.

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