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

Juliana D. Araujo, Povilas Lastauskas and Chris Papageorgiou ()

Journal of Money, Credit and Banking, 2017, vol. 49, issue 7, 1517-1554

Abstract: Motivated by the rise in capital flows to low‐income countries (LICs), we examine the nature of these flows and the factors affecting foreign investors' decision. Recognizing the presence of fixed investment costs, we analyze capital flows at both intensive and extensive margins. To fix ideas, we resort to the gravity literature for the estimating relationships which we embed into a two‐tier econometric framework with cross‐sectional dependence. Our main finding is that market entry costs are statistically and economically very detrimental to LICs. We also obtain the gravity‐type relationship for the destination income unconditionally but not after conditioning on relevant variables, as well as establish labor productivity as a robust attractor of capital inflows.

Date: 2017
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Citations: View citations in EconPapers (4)

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https://doi.org/10.1111/jmcb.12423

Related works:
Working Paper: Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins (2016)
Working Paper: Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:49:y:2017:i:7:p:1517-1554

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