International Capital Flows and Development: Financial Openness Matters

By Luca A Ricci, Thierry Tressel, Dennis B. S. Reinhardt

October 1, 2010

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Luca A Ricci, Thierry Tressel, and Dennis B. S. Reinhardt International Capital Flows and Development: Financial Openness Matters, (USA: International Monetary Fund, 2010) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Does capital flow from rich to poor countries? We revisit the Lucas paradox and explore the role of capital account restrictions in shaping capital flows at various stages of economic development. We find that, when accounting for the degree of capital account openness, the prediction of the neoclassical theory is confirmed: less developed countries tend to experience net capital inflows and more developed countries tend to experience net capital outflows, conditional of various countries’ characteristics. The findings are driven by foreign direct investment, portfolio equity investment, and to some extent by loans to the private sector.

Subject: Balance of payments, Capital account, Capital flows, Capital inflows, Current account, National accounts, Personal income

Keywords: Capital account, Capital flows, Capital inflows, Country coefficient, Current account, Economic development, Financial openness, Foreign direct investment, GDP ratio, Global, Income country, Investment vis-à-vis, Low income, Lucas paradox, Net capital capital inflow, Net capital inflow, Net capital outflow, Personal income, Portfolio equity investment, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/235
Stock No:

WPIEA2010235
ISBN:

9781455209354
ISSN:

1018-5941

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