Are Capital Flows Consistent with the Neoclassical Growth Model?: Evidence from a Cross-Section of Developing Countries
CEPR Discussion Paper No. 1400
Posted: 12 Dec 1996
Date Written: May 1996
We identify the determinants of capital movements in an "augmented-Solow" model where capital mobility is restricted to a subset of capital assets. We then test the prediction of the neoclassical model and find that it is consistent with the evidence on net capital flows in a cross-section of developing countries over the period 1960-82. We find that this is no longer true after 1982, however: the episodes of foreign debt repudiation and the world financial crisis of the early 1980s are the most natural candidates for an explanation of this pattern.
JEL Classification: F21, O30, O40
Suggested Citation: Suggested Citation