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International capital flows and development: Financial openness matters

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  • Reinhardt, Dennis
  • Ricci, Luca Antonio
  • Tressel, Thierry

Abstract

Does capital flow from rich to poor countries? We revisit the Lucas paradox to account for the role of capital account openness. We find that, when accounting for such openness, the prediction of the neoclassical theory is empirically confirmed: among financially open economies, less developed countries tend to experience net capital inflows and more developed countries tend to experience net capital outflows. The results hold also when taking into account private flows, institutions, and numerous controls. We also show that reserve intervention has an effect on the current account only in financially open economies.

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Bibliographic Info

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

Volume (Year): 91 (2013)
Issue (Month): 2 ()
Pages: 235-251

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Handle: RePEc:eee:inecon:v:91:y:2013:i:2:p:235-251

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

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Keywords: Lucas paradox; Capital flows; Financial openness; Economic development;

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Cited by:
  1. Robert Vermeulen & Jakob de Haan, 2012. "Net Foreign Asset (Com)position: Does Financial Development Matter?," DNB Working Papers 340, Netherlands Central Bank, Research Department.
  2. Joseph E. Gagnon, 2013. "The Elephant Hiding in the Room: Currency Intervention and Trade Imbalances," Working Paper Series WP13-2, Peterson Institute for International Economics.
  3. Konov, Joshua Ioji, 2012. "Market Economy under Rapid Globalization and Rising Productivity," MPRA Paper 48750, University Library of Munich, Germany.
  4. Raddatz, Claudio & Schmukler, Sergio L. & Williams, Tomas, 2014. "International asset allocations and capital flows : the benchmark effect," Policy Research Working Paper Series 6866, The World Bank.
  5. Anderson, John, 2013. "Converting and transferring currency : benchmarking foreign exchange restrictions to foreign direct investment across economies," Policy Research Working Paper Series 6601, The World Bank.
  6. repec:idb:brikps:81941 is not listed on IDEAS

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