International Capital Flows and Development: Financial Openness Matters

45 Pages Posted: 1 Feb 2011

See all articles by Dennis Reinhardt

Dennis Reinhardt

Bank of England

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Thierry Tressel

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 2010

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: Capital account, Capital flows, Cross country analysis, Current account, Developed countries, Developing countries, Development, Economic models

Suggested Citation

Reinhardt, Dennis and Ricci, Luca Antonio and Tressel, Thierry, International Capital Flows and Development: Financial Openness Matters (October 2010). IMF Working Papers, Vol. , pp. 1-44, 2010. Available at SSRN: https://ssrn.com/abstract=1750724

Dennis Reinhardt

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Luca Antonio Ricci (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

Thierry Tressel

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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