International capital flows and development: financial openness matters
Dennis Reinhardt (),
Luca Ricci () and
Thierry Tressel ()
No 472, Bank of England working papers from Bank of England
Does capital flow from rich to poor countries? We revisit the Lucas paradox and ask whether it results from a lack of capital account openness. We find that, when accounting for such openness, the prediction of neoclassical theory is empirically confirmed: among financially open economies, less-developed countries tend to experience net capital inflows and more-developed countries tend to experience net capital outflows. These results also hold when taking into account private flows, institutions, and numerous controls. We also show that reserve intervention has an effect on the current account only in financially open economies.
Keywords: Lucas paradox; capital flows; financial openness; economic development (search for similar items in EconPapers)
JEL-codes: F21 F36 O40 (search for similar items in EconPapers)
Pages: 49 pages
New Economics Papers: this item is included in nep-opm
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Journal Article: International capital flows and development: Financial openness matters (2013)
Working Paper: International Capital Flows and Development - Financial Openness Matters (2012)
Working Paper: International Capital Flows and Development: Financial Openness Matters (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0472
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