Why Does Capital Flow to Rich States?

Oved Yosha, Sørensen, Bent E, Kalemli-Özcan, Sebnem and Ariell Reshef
Authors registered in the RePEc Author Service: Sebnem Kalemli-Ozcan and Bent E. Sorensen

No 5635, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the determinants of net capital income flows within the United States. We analyze a simple multi-state neoclassical model in which total factor productivity varies across states and over time and capital flows freely across state borders. The model predicts that capital will flow to states with relatively high output growth. Since relative growth patterns are persistent such states are also high output states, which implies that high output will be associated with inflows of capital and net outflows of capital income. Our empirical findings correspond well to the predictions of the model and indicate persistent net capital income flows and net cross-state investment positions between states which are an order of magnitude larger than observed capital income flows between countries. Thus, our results imply that frictions associated with national borders are likely to be the main explanation for 'low' international capital flows.

Keywords: Capital flows; Ownership; Historical income; Net factor income (search for similar items in EconPapers)
JEL-codes: F21 F41 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-cba and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Why Does Capital Flow to Rich States? (2010)
Working Paper: Why Does Capital Flow to Rich States? (2007)
Working Paper: Why Does Capital Flow to Rich States? (2005)
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