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Growth and Capital Flows with Risky Entrepreneurship
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Author/Editor: |
Sandri, Damiano |
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February 1, 2010 |
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Electronic Access: |
Free Full Text (PDF file size is 1,435KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
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Summary: This paper shows that the behavior of entrepreneurs facing incomplete financial markets and risky investment can explain why growth accelerations in developing countries tend to be associated with current account improvements. The uninsurable risk of losing invested capital forces entrepreneurs to rely on self-financing, so that when business opportunities open up entrepreneurs increase saving to finance the investment that produces growth. The key insight is that saving has to rise more than investment to allow also for the accumulation of precautionary assets. Plausibly calibrated simulations show that this net saving increase can sustain large and persistent net capital outflows.
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Order a print copy
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Series: |
Working Paper No. 10/37 |
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Subject(s): |
Capital flows | Capital outflows | Economic growth | Economic models | Financial risk | Private investment | Private savings | Private sector |
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Author's keyword(s): |
Investment Risk
| Saving
| Capital Flows
| Financial Development
| Growth.
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Published: |
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February 1, 2010 |
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Format: |
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Paper |
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Stock No: |
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WPIEA2010037 |
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Pages: |
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26 |
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Price: |
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US$18.00 (Academic Rate: US$18.00 )
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