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International capital flows and development: financial openness matters

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  • Reinhardt, Dennis

    ()
    (Bank of England)

  • Ricci, Luca Antonio

    ()
    (International Monetary Fund)

  • Tressel, Thierry

    ()
    (International Monetary Fund)

Abstract

Does capital flow from rich to poor countries? We revisit the Lucas paradox and ask whether it results from a lack of capital account openness. We find that, when accounting for such openness, the prediction of 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. These results also hold 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

Paper provided by Bank of England in its series Bank of England working papers with number 472.

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Length: 49 pages
Date of creation: 14 Jun 2013
Date of revision:
Handle: RePEc:boe:boeewp:0472

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Keywords: Lucas paradox; capital flows; financial openness; economic development;

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References

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Citations

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Cited by:
  1. 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.
  2. Konov, Joshua Ioji, 2012. "Market Economy under Rapid Globalization and Rising Productivity," MPRA Paper 48750, University Library of Munich, Germany.
  3. repec:idb:brikps:81941 is not listed on IDEAS
  4. Vermeulen, Robert & de Haan, Jakob, 2014. "Net foreign asset (com)position: Does financial development matter?," Journal of International Money and Finance, Elsevier, vol. 43(C), pages 88-106.
  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. 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.

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