Why Does Capital Flow to Rich States?

56 Pages Posted: 18 Jul 2006

See all articles by Sebnem Kalemli-Ozcan

Sebnem Kalemli-Ozcan

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

Ariell Reshef

Paris School of Economics (PSE); CNRS; Université Paris I Panthéon-Sorbonne - CES/CNRS; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2006

Abstract

We study the determinants of net capital income flows within the United States. We analyze a simple multi-state neoclassical model in which total factor productivity varies across states and over time and capital flows freely across state borders. The model predicts that capital will flow to states with relatively high output growth. Since relative growth patterns are persistent such states are also high output states, which implies that high output will be associated with inflows of capital and net outflows of capital income. Our empirical findings correspond well to the predictions of the model and indicate persistent net capital income flows and net cross-state investment positions between states which are an order of magnitude larger than observed capital income flows between countries. Thus, our results imply that frictions associated with national borders are likely to be the main explanation for 'low' international capital flows.

Keywords: Capital flows, ownership, historical income, net factor income

JEL Classification: F21, F41

Suggested Citation

Kalemli-Ozcan, Sebnem and Reshef, Ariell and Sorensen, Bent E. and Yosha, Oved, Why Does Capital Flow to Rich States? (April 2006). CEPR Discussion Paper No. 5635. Available at SSRN: https://ssrn.com/abstract=916766

Sebnem Kalemli-Ozcan

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

Ariell Reshef

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

CNRS ( email )

France

Université Paris I Panthéon-Sorbonne - CES/CNRS ( email )

106 bv de l'Hôpital
Paris, 75013
France

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

Bent E. Sorensen (Contact Author)

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

N/A

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