Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America

Lee Ohanian, Paulina Restrepo-Echavarria and Mark Wright

American Economic Review, 2018, vol. 108, issue 12, 3541-82

Abstract: After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns. Surprisingly, we find that distortions in labor markets, rather than domestic or international capital markets, account for the bulk of these flows. Labor market distortions that indirectly depress investment incentives by lowering equilibrium labor supply explain two-thirds of observed flows, while improvement in these distortions over time accounts for much of Asia's rapid growth.

JEL-codes: E22 E24 E32 F21 F32 O16 O47 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20151510
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Citations: View citations in EconPapers (19)

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Related works:
Working Paper: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2018)
Working Paper: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2017)
Working Paper: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2015)
Working Paper: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2015)
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