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Which Types of Capital Inflows Foster Developing-Country Growth?

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Author Info
Reisen, Helmut
Soto, Marcelo

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Abstract

As a result of the Asian crisis, both the virtues of domestic savings and the risks of foreign savings have been emphasized in the debate on development finance. In particular, East Asia, with its enviable saving rates, it has been argued by economists such as Joe Stiglitz and Jagdish Bhagwati, does not need foreign funds for investment and growth. This paper explores the benefits of private capital inflows by reviewing the analytical arguments advanced in the literature and by building fresh empirical evidence. Particular attention is given to the independent growth impact of the various broad categories of flows in the recipient emerging markets. The paper provides panel data analysis covering 44 countries over the period 1986-97; correcting for standard growth determinants, it measures the independent growth effect of foreign direct investment, portfolio equity investment, bond flows, as well as short-term and long-term bank lending. The findings suggest that developing countries should not solely rely on national savings, but rather should encourage foreign direct investment and portfolio equity inflows so as to stimulate long-term growth prospects. Copyright 2001 by Blackwell Publishers Ltd.

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Article provided by Blackwell Publishing in its journal International Finance.

Volume (Year): 4 (2001)
Issue (Month): 1 (Spring)
Pages: 1-14
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Handle: RePEc:bla:intfin:v:4:y:2001:i:1:p:1-14

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  1. Kristin J. Forbes, 2005. "The Microeconomic Evidence on Capital Controls: No Free Lunch," NBER Working Papers 11372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Narula,Rajneesh & Portelli,Brian, 2004. "Foreign direct investment and economic development: Opportunities and limitations from a developing country perspective," Research Memoranda 009, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  3. Nevine Mokhtar Eid, 2008. "Financial Development: A Pre-Condition for Foreign Direct Spillover Effects in Egypt," Working Papers 12, The German University in Cairo, Faculty of Management Technology. [Downloadable!]
  4. Ayhan Kose & Marco E. Terrones & Eswar Prasad, 2004. "How do trade and financial integration affect the relationship between growth and volatility?," Proceedings, Federal Reserve Bank of San Francisco, issue Jun. [Downloadable!]
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  5. Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Contribute to Skill Upgrading in Developing Countries?," SCEPA Working Papers 2002-08, Schwartz Center for Economic Policy Analysis (SCEPA), The New School. [Downloadable!]
  6. Sean Holly & Mehdi Raissi, 2009. "The Macroeconomic Effects of European Financial Development: A Heterogenous Panel Analysis," Working Paper / FINESS 1.4, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  7. Joël van der Weele, 2005. "Financing development: debt versus equity," DNB Working Papers 038, Netherlands Central Bank, Research Department. [Downloadable!]
  8. Ian Goldin & Kenneth Reinert, 2005. "Global capital flows and development: A Survey," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 14(4), pages 453-481, December. [Downloadable!] (restricted)
  9. Nestmann, Thorsten, 2005. "German bank lending to industrial and non-industrial countries: driven by fundamentals or different treatment?," Discussion Paper Series 2: Banking and Financial Studies 2005,08, Deutsche Bundesbank, Research Centre. [Downloadable!]
  10. Andrew Sumner, 2006. "Why Are We Still Arguing about Globalisation," Working Papers id:538, esocialsciences.com. [Downloadable!]
  11. Ozturk, I., 2007. "Foreign Direct Investment – Growht Nexus: A Review of The Recent Literature," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 4(2), pages 79-98. [Downloadable!]
  12. Graciela L. Kaminsky, 2004. "Flux internationaux de capitaux : bénédiction ou malédiction ?," Revue d’économie du développement, De Boeck Université, vol. 18(3), pages 83-119. [Downloadable!]
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