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http://ssrn.com/abstract=1920472
 
 

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Sovereigns, Upstream Capital Flows and Global Imbalances


Laura Alfaro


Harvard University - Business, Government and the International Economy Unit

Sebnem Kalemli-Ozcan


University of Maryland

Vadym Volosovych


Erasmus University Rotterdam (EUR); Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

March 25, 2014

Harvard Business School BGIE Unit Working Paper No. 12-009

Abstract:     
We construct measures of net private and public capital flows for a large cross-section of developing countries considering both creditor and debtor side of the international debt transactions. Using these measures, we demonstrate that sovereign-to-sovereign transactions account for upstream capital flows and global imbalances. Specifically, we find i) international net private capital flows (inflows minus outflows of private capital) are positively correlated with countries’ productivity growth, ii) net sovereign debt flows (government borrowing minus reserves) are negatively correlated with growth only if net public debt is financed by another sovereign, iii) net public debt financed by private creditors is positively correlated with growth, iv) public savings are strongly positively correlated with growth, whereas correlation between private savings and growth is flat and statistically insignificant. These empirical facts contradict the conventional wisdom and constitute a challenge for the existing theories on upstream capital flows and global imbalances.

Number of Pages in PDF File: 52

Keywords: current account, aid/government debt, reserves, productivity

JEL Classification: F21, F41, O1

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Date posted: August 31, 2011 ; Last revised: March 27, 2014

Suggested Citation

Alfaro, Laura and Kalemli-Ozcan, Sebnem and Volosovych, Vadym, Sovereigns, Upstream Capital Flows and Global Imbalances (March 25, 2014). Harvard Business School BGIE Unit Working Paper No. 12-009. Available at SSRN: http://ssrn.com/abstract=1920472 or http://dx.doi.org/10.2139/ssrn.1920472

Contact Information

Laura Alfaro (Contact Author)
Harvard University - Business, Government and the International Economy Unit ( email )
Cambridge, MA 02138
United States
Sebnem Kalemli-Ozcan
University of Maryland ( email )
College Park, MD 20742
United States
Vadym Volosovych
Erasmus University Rotterdam (EUR) ( email )
Burgemeester Oudlaan 50
Room H14-30
3000 DR Rotterdam, 3062PA
Netherlands
+31 10 408 1286 (Phone)
+31 10 408 9165 (Fax)
HOME PAGE: http://people.few.eur.nl/volosovych
Tinbergen Institute
Burg. Oudlaan 50
Room H14-30
Rotterdam, 3062 PA
Netherlands
+31 10 408 1286 (Phone)
+31 10 408 9165 (Fax)
HOME PAGE: http://www.tinbergen.nl/ti-people/fellows.php?id=1821
Erasmus Research Institute of Management (ERIM)
P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1286 (Phone)
HOME PAGE: http://www.erim.eur.nl/ERIM/People/Person_Details?aff_id=9731
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