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Capital flows and economic growth in the era of financial integration and crisis, 1990-2010

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  • Aizenman, Joshua
  • Jinjarak, Yothin
  • Park, Donghyun

Abstract

We investigate the relationship between economic growth and lagged internationalcapital flows, disaggregated into FDI, portfolio investment, equity investment, and shorttermdebt. We follow about 100 countries during 1990-2010 when emerging marketsbecame more integrated into the international financial system. We look at therelationship both before and after the global crisis. Our study reveals a complex andmixed picture. The relationship between growth and lagged capital flows depends on thetype of flows, economic structure, and global growth patterns. We find a large and robustrelationship between FDI – both inflows and outflows – and growth. The relationshipbetween growth and equity flows is smaller and less stable. Finally, the relationshipbetween growth and short-term debt is nil before the crisis, and negative during the crisis

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt3003w1qd.

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Date of creation: 15 Oct 2011
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Handle: RePEc:cdl:ucscec:qt3003w1qd

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Keywords: Social and Behavioral Sciences; Capital flows; economic growth; FDI; portfolio investment; equity investment; short-term debt; financial integration; financial crisis;

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  1. Meir Kohn & Nancy Marion, 1992. "The Implications of Knowledge-Based Growth for the Optimality of Open Capital Markets," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 865-83, November.
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Cited by:
  1. Peter Montiel, 2014. "Capital Flows: Issues and Policies," Open Economies Review, Springer, vol. 25(3), pages 595-633, July.
  2. Brittany Baumann & Kevin Gallagher, 2013. "Post-Crisis Capital Account Regulation in South Korea and South Africa," Working Papers wp320, Political Economy Research Institute, University of Massachusetts at Amherst.
  3. de la Torre, Augusto & Didier, Tatiana & Pinat, Magali, 2014. "Can Latin America tap the globalization upside ?," Policy Research Working Paper Series 6837, The World Bank.
  4. Owen, Ann L. & Temesvary, Judit, 2014. "Heterogeneity in the growth and finance relationship: How does the impact of bank finance vary by country and type of lending?," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 275-288.
  5. Harms, Philipp & Méon, Pierre-Guillaume, 2011. "An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries," Proceedings of the German Development Economics Conference, Berlin 2011 38, Verein für Socialpolitik, Research Committee Development Economics.
  6. Grenville, Stephen, 2012. "Rethinking Capital Flows for Emerging East Asia," ADBI Working Papers 362, Asian Development Bank Institute.
  7. Kevin Gallagher, 2012. "The Myth of Financial Protectionism: The New (and old) Economics of Capital Controls," Working Papers wp278, Political Economy Research Institute, University of Massachusetts at Amherst.

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