Increasing Returns, Institutions, and Capital Flows

Thomas Jack Snyder ()
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Thomas Jack Snyder: College of Business, University of Central Arkansas, RM 211O, 201 Donaghey Ave, Conway, AR 72035, USA.

Eastern Economic Journal, 2013, vol. 39, issue 3, 285-308

Abstract: This paper empirically tests one prominent explanation for why capital has not flowed from the rich to the poor countries: institutions. In contrast to the study by Alfraro, Kalemli-Ozcan, and Volosovych in 2008, institutional quality does not explain the Lucas Paradox. Like them, institutional variables are found to be a very important factor, but in contrast to their findings, initial Gross Domestic Product (GDP) still plays a role in capital flows. In addition, poor countries may have different determinants of capital flows from rich countries. The evidence suggests a threshold income level, where a country receives significantly more capital flows if given a sufficiently high income.

Date: 2013
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