Growing Up with Capital Flows

Author/Editor:

Ashoka Mody ; Antu Panini Murshid

Publication Date:

April 1, 2002

Electronic Access:

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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

Summary:

In a sample of 60 developing countries, we find evidence of a strong-almost one-to-one-relationship between capital inflows and domestic investment. However, this relationship has evolved over time. While growing financial integration with the rest of the world has increased access to foreign private capital, the relationship between foreign capital and domestic investment has weakened, reflecting changes in the composition of inflows, offsetting outflows, and increased foreign-currency reserve requirements. In contrast, better policies have not only brought in more capital but also, especially for foreign direct investment, have tended to strengthen the relationship between foreign capital and domestic investment.

Series:

Working Paper No. 2002/075

Subject:

Balance of payments Capital account Capital flows Capital inflows Financial integration Financial markets Foreign direct investment

English

Publication Date:

April 1, 2002

ISBN/ISSN:

9781451849745/1018-5941

Stock No:

WPIEA0752002

Pages:

32

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