International Capital Flows and Development: Financial Openness Matters

Luca Ricci, Thierry Tressel and Dennis Reinhardt

No 2010/235, IMF Working Papers from International Monetary Fund

Abstract: Does capital flow from rich to poor countries? We revisit the Lucas paradox and explore the role of capital account restrictions in shaping capital flows at various stages of economic development. We find that, when accounting for the degree of capital account openness, the prediction of the neoclassical theory is confirmed: less developed countries tend to experience net capital inflows and more developed countries tend to experience net capital outflows, conditional of various countries’ characteristics. The findings are driven by foreign direct investment, portfolio equity investment, and to some extent by loans to the private sector.

Keywords: WP; net capital capital inflow; income country; GDP ratio; foreign direct investment; country coefficient; Lucas paradox; capital flows; financial openness; economic development; portfolio equity investment; net capital inflow; low income; investment vis-à-vis; net capital outflow; Capital account; Current account; Capital inflows; Personal income; Global (search for similar items in EconPapers)
Pages: 44
Date: 2010-10-01
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: International capital flows and development: Financial openness matters (2013)
Working Paper: International capital flows and development: financial openness matters (2013)
Working Paper: International Capital Flows and Development - Financial Openness Matters (2012)
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