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

Lee Ohanian (), Paulina Restrepo-Echavarria and Mark Wright ()
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Paulina Restrepo-Echavarria: Federal Reserve Bank of St Louis

No 563, Staff Report from Federal Reserve Bank of Minneapolis

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.

Keywords: Capital flows; Labor markets; Domestic capital markets; International capital markets (search for similar items in EconPapers)
JEL-codes: E21 F21 F41 J20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-his, nep-lam, nep-lma, nep-mac, nep-opm and nep-sea
Date: 2018-05-14
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Journal Article: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2018) Downloads
Working Paper: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2017) Downloads
Working Paper: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2015) Downloads
Working Paper: Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:563

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DOI: 10.21034/sr.563

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