The effect of capital inflows on the imports of capital goods in developing countries

Jan Fidrmuc, Khusrav Gaibulloev, Ali Mirzaei and Tomoe Moore

Journal of Corporate Finance, 2024, vol. 84, issue C

Abstract: This paper examines the relationship between capital inflows and import of capital goods to credit-constrained industries in developing countries. Using data of 11 industrial sectors in 57 countries for 2000–2020, we find that financially dependent industries import disproportionately more capital goods if they operate in countries that receive more foreign funds. A host of robustness tests, including instrumental variables estimation, confirm our main finding. We also document that: (i) the established nexus breaks down during the global financial crisis, (ii) the observed relationship is mainly due to the direct investment via equity, and (iii) host countries tend to import relatively more capital goods from G7 economies. Overall, our results suggest that one channel through which capital inflows affect economic growth is by alleviating firms' financial constraints, thereby enabling firms to acquire more advanced capital goods.

Keywords: International capital flows; Capital goods; Financial dependence; Developing countries (search for similar items in EconPapers)
JEL-codes: E22 F15 F21 F30 L6 (search for similar items in EconPapers)
Date: 2024
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Working Paper: The effect of capital inflows on the imports of capital goods in developing countries (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:84:y:2024:i:c:s0929119923001803

DOI: 10.1016/j.jcorpfin.2023.102531

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