## Capital Inflows, Financial Development, and Domestic Investment: Determinants and Inter-Relationships

_IMF Working Papers, May 1, 2012_

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**Canonical URL:** [Capital Inflows, Financial Development, and Domestic Investment: Determinants and Inter-Relationships](https://www.imf.org/en/publications/wp/issues/2016/12/31/capital-inflows-financial-development-and-domestic-investment-determinants-and-inter-25907)

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## Bibliographic details
- Authors: Nikola Spatafora, Oana Luca
- Published: May 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475503494.001

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### Summary of scope and period
- Examines determinants of, and interactions between, capital inflows, financial development, and domestic investment in developing countries during 2001-07.
- Focus on a period of surging global liquidity and low interest rates.

### Key empirical findings
- Reductions in the global price of risk and in domestic borrowing costs were the main contributors to the increase over time in net capital inflows and domestic credit.
- Large cross-country differences in domestic and international finance are best explained by fundamentals such as:
  - institutional quality,
  - access to international export markets,
  - an appropriate macroeconomic policy.
- Both private capital inflows and domestic credit exert a positive effect on investment.
- Private capital inflows and domestic credit mediate most of the investment impact of:
  - the global price of risk,
  - domestic borrowing costs.
- Neither greater domestic credit nor greater institutional quality increase the extent to which capital inflows translate into domestic investment (a surprising null result).

### Subject areas and keywords (as listed)
- Balance of payments, Capital inflows, Domestic credit, Export performance, Exports, International trade, Money, National accounts, Return on investment
- Keywords include: borrowing cost, Capital flows, Capital inflows, cost of capital, Developing Countries, domestic credit, Export performance, Financial Development, GDP increase, Global, investment, investment estimation, net capital inflow, Return on investment, terms-of-trade index, WP

### Publication metadata (from page)
- Authors: Nikola Spatafora, Oana Luca
- Date: May 1, 2012
- Series: Working Paper No. 2012/120
- Issue: 120
- Volume: 2012
- Pages: 22
- DOI: https://doi.org/10.5089/9781475503494.001
- ISBN: 9781475503494
- ISSN: 1018-5941
- Stock No: WPIEA2012120

*Source: IMF Working Paper by Nikola Spatafora and Oana Luca, May 1, 2012.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/capital-inflows-financial-development-and-domestic-investment-determinants-and-inter-25907_