## International Capital Flows and Development: Financial Openness Matters

_IMF Working Papers, October 1, 2010_

## Source details

**Canonical URL:** [International Capital Flows and Development: Financial Openness Matters](https://www.imf.org/en/publications/wp/issues/2016/12/31/international-capital-flows-and-development-financial-openness-matters-24284)

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## Bibliographic details
- Authors: Luca A Ricci, Thierry Tressel, Dennis B. S. Reinhardt
- Published: October 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455209354.001

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### Summary
- Research question: Does capital flow from rich to poor countries? The study revisits the Lucas paradox and explores the role of capital account restrictions in shaping capital flows at various stages of economic development.
- Main conclusion: 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 on various countries’ characteristics.
- Drivers identified: Findings are driven by foreign direct investment, portfolio equity investment, and to some extent by loans to the private sector.

### Key findings
- Less developed countries tend to experience net capital inflows, conditional on countries’ characteristics and the degree of capital account openness.
- More developed countries tend to experience net capital outflows, conditional on countries’ characteristics and the degree of capital account openness.
- Specific capital flow components driving results:
  - Foreign direct investment
  - Portfolio equity investment
  - Loans to the private sector (to some extent)

### Subject areas and keywords
- Subject: Balance of payments, Capital account, Capital flows, Capital inflows, Current account, National accounts, Personal income
- Keywords: Capital account, capital flows, Capital inflows, country coefficient, Current account, economic development, financial openness, foreign direct investment, GDP ratio, Global, income country, investment vis-à-vis, low income, Lucas paradox, net capital capital inflow, net capital inflow, net capital outflow, Personal income, portfolio equity investment, WP

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- **_wp10235 - Appendix Tables**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/international-capital-flows-and-development-financial-openness-matters-24284_