Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007
Lee Ohanian (),
Paulina Restrepo-Echavarria and
Mark Wright ()
No 2014-38, Working Papers from Federal Reserve Bank of St. Louis
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 their removal accounts for much of Asia’s growth.
Keywords: Capital Flows; Labor Markets; Domestic Capital Markets; International Capital Markets (search for similar items in EconPapers)
JEL-codes: F41 F42 F43 F44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his, nep-lam, nep-opm and nep-sea
Date: 2013-11-25, Revised 2017-05-16
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Working Paper: Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007 (2015)
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