Why Doesn&Apos;T Capital Flow from Rich to Poor Countries? An Empirical Investigation

69 Pages Posted: 20 Jul 2006 Last revised: 10 Jul 2021

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

Vadym Volosovych

Erasmus University Rotterdam (EUR); Tinbergen Institute

Date Written: December 2005

Abstract

We examine the empirical role of different explanations for the lack of flows of capital from rich to poor countries the "Lucas Paradox." The theoretical explanations include differences in fundamentals across countries and capital market imperfections. We show that during 1970-2000 low institutional quality is the leading explanation. For example, improving Peru's institutional quality to Australia's level, implies a quadrupling of foreign investment. Recent studies emphasize the role of institutions for achieving higher levels of income, but remain silent on the specific mechanisms. Our results indicate that foreign investment might be a channel through which institutions affect long-run development.

Suggested Citation

Alfaro, Laura and Kalemli-Ozcan, Sebnem and Volosovych, Vadym, Why Doesn&Apos;T Capital Flow from Rich to Poor Countries? An Empirical Investigation (December 2005). NBER Working Paper No. w11901, Available at SSRN: https://ssrn.com/abstract=872737

Laura Alfaro

Harvard University ( email )

Cambridge, MA 02138
United States

Sebnem Kalemli-Ozcan (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Koc University, Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

Vadym Volosovych

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
Room E2-31
3000 DR Rotterdam, 3062PA
Netherlands
+31 10 408 1286 (Phone)
+31 10 408 9165 (Fax)

HOME PAGE: http://https://www.eur.nl/people/vadym-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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
100
Abstract Views
1,723
rank
322,463
PlumX Metrics