Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America

51 Pages Posted: 23 Nov 2015 Last revised: 30 Nov 2015

See all articles by Lee E. Ohanian

Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Paulina Restrepo-Echavarria

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Mark L. J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Multiple version iconThere are 2 versions of this paper

Date Written: November 2015

Abstract

Since 1950, the economies of East Asia grew rapidly but received little inter-national capital, while Latin America received considerable international capitaleven as their economies stagnated. The literature typically explains the failureof capital to flow to high growth regions as resulting from international capitalmarket imperfections. This paper proposes a broader thesis that country-specificdistortions, such as domestic labor and capital market distortions, also impactcapital flows. We develop a DSGE model of Asia, Latin America, and the Rest ofthe World that features an open-economy business cycle accounting framework tomeasure these domestic and international distortions, and to quantify their con-tributions to international capital flows. We find that domestic distortions havebeen the predominant drivers of international capital flows, and that the generalequilibrium effects of these distortions are very large. International capital market distortions also matter, but less.

Suggested Citation

Ohanian, Lee E. and Restrepo-Echavarria, Paulina and Wright, Mark L.J., Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America (November 2015). NBER Working Paper No. w21744. Available at SSRN: https://ssrn.com/abstract=2694411

Lee E. Ohanian (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
8283 Bunch Hall
Los Angeles, CA 90095-1477
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National Bureau of Economic Research (NBER)

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Paulina Restrepo-Echavarria

Federal Reserve Banks - Federal Reserve Bank of St. Louis

P.O. Box 442
St. Louis, MO 63166-0442
United States

Mark L.J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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