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What drives long-term capital flows A theoretical and empirical investigation

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  • Verdier, Genevieve

Abstract

What drives capital inflows in the long run? Do they follow the predictions of neoclassical theory, or are other forces at work? The purpose of this paper is to illustrate how long-term capital movements conform surprisingly well to the predictions of a simple neoclassical model with credit constraints. The most surprising prediction of this class of models is that, contrary to a pure neoclassical model, domestic savings should act as a complement rather than a substitute to capital inflows. Nevertheless, this class of models keeps the neoclassical prediction that, ceteris paribus, capital should flow to the countries where it is most scarce. Using data on net foreign liabilities over the 1970 to 1997 period, I find evidence that supports these predictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 74 (2008)
Issue (Month): 1 (January)
Pages: 120-142

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Handle: RePEc:eee:inecon:v:74:y:2008:i:1:p:120-142

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Web page: http://www.elsevier.com/locate/inca/505552

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Cited by:
  1. Abdul Karim, Zulkefly & Zaidi, Mohd Azlan Shah & Ismail, Mohd Adib & Abdul Karim, Bakri, 2011. "Institutions and foreign direct investment (FDI) in Malaysia: empirical evidence using ARDL model," MPRA Paper 31899, University Library of Munich, Germany.
  2. Lipschitz, Leslie & Rochon, Céline & Verdier, Geneviève, 2011. "A real model of transitional growth and competitiveness in China," Journal of Asian Economics, Elsevier, vol. 22(4), pages 267-283, August.
  3. Fernando Arias & Daira Garrido & Daniel Parra & Hernán Rincón, 2012. "¿Responden los diferentes tipos de flujos de capitales a los mismos fundamentos y en el mismo grado? Evidencia reciente para países emergentes," BORRADORES DE ECONOMIA 009764, BANCO DE LA REPÚBLICA.
  4. Luca Antonio Ricci & Thierry Tressel & Dennis B. S. Reinhardt, 2010. "International Capital Flows and Development: Financial Openness Matters," IMF Working Papers 10/235, International Monetary Fund.
  5. João Sousa Andrade, 2007. "La these de Feldstein-Horioka: une mesure de la mobilité internationale du capital," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 54(1), pages 53-67, March.

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