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International capital flows and development: financial openness matters

Author

Listed:
  • 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.

Suggested Citation

  • Reinhardt, Dennis & Ricci, Luca Antonio & Tressel, Thierry, 2013. "International capital flows and development: financial openness matters," Bank of England working papers 472, Bank of England.
    • Handle: RePEc:boe:boeewp:0472
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    More about this item

    Keywords

    Lucas paradox; capital flows; financial openness; economic development;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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