Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins

Juliana Araujo, Povilas Lastauskas and Chris Papageorgiou ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The capital flows network has changed substantially, bringing new investors and target economies into play. Related, a recent intensification of capital flows to low income countries (LICs) has posed a number of questions. Most importantly, the very nature of those flows and important factors affecting foreign investors decision which can ultimately affect growth prospects of low income countries (together with an issue of sustainability) remain open for an academic probe. Due to an existence of a share of costs which is fixed in nature, there is a need to analyze capital flows and their evolution at two margins: intensive and extensive. This paper presents a parsimonious theoretical account that is consequently mapped into an econometric framework where we allow for two-tier decisions and cross-sectional dependence. Results indicate that market entry costs affect investment decisions pertinent to the LICs, consistently with the static theory. However, persistence in extensive margin eliminates this effect once dynamics is allowed for.

Keywords: Bilateral Capital Flows; Foreign Direct Investment; Portfolio Flows; Developing Economies; Extensive and Intensive Margins; Heterogeneous Panels; Cross-Sectional Dependence; Copulae. (search for similar items in EconPapers)
JEL-codes: C33 C34 F21 F62 O16 (search for similar items in EconPapers)
Date: 2015-03-02
New Economics Papers: this item is included in nep-opm
Note: pl312
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins (2017)
Working Paper: Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1502

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