44 Pages Posted: 29 Oct 2004
Date Written: May 2004
Capital flows to developing countries are small and mostly take the form of loans rather than direct foreign investment. Kraay, Loayza, and Serven build a simple model of North-South capital flows that highlights the interplay between diminishing returns, production risk, and sovereign risk. The model generates a set of country portfolios and a world distribution of capital stocks that resemble those in the data.
This paper - a product of Investment Climate, Development Research Group - is part of a larger effort in the group to study international capital flows.
JEL Classification: F32, F34
Suggested Citation: Suggested Citation