Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007

Paulina Restrepo-Echavarria, Mark Wright and Lee Ohanian

No 1377, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: Theory predicts that capital should flow to countries where economic growth and the return to capital is highest. However, in the post-World War II period, per-capita GDP grew almost three times faster in East Asia than in Latin America, yet capital flowed in greater quantities into Latin America. In this paper we propose a 3-country 2-sector growth model, augmented by 'wedges' to quantify and evaluate the importance of international capital market imperfections versus domestic imperfections in explaining this anomalous behavior of capital flows. We find that during the 1950's capital controls where important, but domestic conditions dominate. And contrary to what has been thought, after 1960 capital controls in Asia encouraged borrowing.

Date: 2015
New Economics Papers: this item is included in nep-dge, nep-his, nep-lam and nep-sea
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Citations: View citations in EconPapers (6)

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Working Paper: Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007 (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:1377

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