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Sovereigns, Upstream Capital Flows and Global Imbalances

52 Pages Posted: 31 Aug 2011 Last revised: 27 Mar 2014

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)

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Date Written: March 25, 2014

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.

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

JEL Classification: F21, F41, O1

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: https://ssrn.com/abstract=1920472 or http://dx.doi.org/10.2139/ssrn.1920472

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
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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