International Capital Flows and Development: Financial Openness Matters

Author/Editor:

Luca A Ricci ; Thierry Tressel ; Dennis B. S. Reinhardt

Publication Date:

October 1, 2010

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:

Does capital flow from rich to poor countries? We revisit the Lucas paradox and explore the role of capital account restrictions in shaping capital flows at various stages of economic development. We find that, when accounting for the degree of capital account openness, the prediction of the neoclassical theory is confirmed: less developed countries tend to experience net capital inflows and more developed countries tend to experience net capital outflows, conditional of various countries’ characteristics. The findings are driven by foreign direct investment, portfolio equity investment, and to some extent by loans to the private sector.

Series:

Working Paper No. 2010/235

Subject:

Balance of payments Capital account Capital flows Capital inflows Current account National accounts Personal income

English

Publication Date:

October 1, 2010

ISBN/ISSN:

9781455209354/1018-5941

Stock No:

WPIEA2010235

Pages:

44

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