Fueling or Following Growth? Causal Effects of Capital Inflows on Recipient Economies

Nicolas End

No 2024/015, IMF Working Papers from International Monetary Fund

Abstract: Identifying the causal impact of capital inflows on growth and development has been a perennial challenge. This paper proposes a new way to investigate the effect of capital flows on recipient emerging and developing economies, using shift-share instruments and correcting for indirect flows. It finds a significantly beneficial effect of loan and bond inflows on economic performance, which materializes after a few years. It also finds some confirmation that the absorptive capacity of recipient economies depends on their fundamentals.

Keywords: Capital flows; economic growth; shift-share instrument; investment inflow; recipient emerging economy; bond portfolio inflow; inflow effect; equity portfolio inflow; Capital inflows; Portfolio investment; Foreign direct investment; Institutional View on capital flows; Global (search for similar items in EconPapers)
Pages: 39
Date: 2024-01-19
New Economics Papers: this item is included in nep-fdg and nep-ure
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