Growth from International Capital Flows: The Role of Volatility Regimes

Antu Murshid and Ashoka Mody

No 2011/090, IMF Working Papers from International Monetary Fund

Abstract: Recent commentary has downplayed the growth dividend from international financial integration, highlighting the possibly negative correlation between capital inflows and long-run growth. This paper presents new evidence consistent with standard economic theory and a more benign interpretation of cross-border private capital flows. The key observation is that a country’s growth volatility changes over time. With volatility below a threshold, an inflow of foreign capital has promoted growth. However, during periods of volatile growth, more flows have been associated with slower growth. Volatility levels and changes reflect an interaction of domestic production and institutional structures with global factors.

Keywords: WP; dependent variable; volatility regime; capital flow; government type (search for similar items in EconPapers)
Pages: 41
Date: 2011-04-01
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Citations: View citations in EconPapers (16)

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