Capital flows: Catalyst or Hindrance to economic takeoffs?
AbstractThis paper applies a probit estimation to assess the relationship between economic takeoffs during 1950-2000 and inflows of portfolio debt, portfolio equity, and FDI, controlling for countryâ€™s stock of short-termexternal debt and commodity terms of trade. Average level of FDI inflows is associated with a 23 percenthigher takeoff probability relative to a zero FDI inflow benchmark, and this effect is highest for the LatinAmerica subsample, with a 65 rise in takeoff probability. Higher stock of short term external debt hasbeen associated with a substantial negative effect on the probability of a takeoff, and the effect of theshort terms debt overhang is largest for Latin American countries. Yet, virtually all the takeoffs wereassociated with a rise in portfolio debt inflows. At the sample mean, inflow of portfolio debt is associatedwith approximately 25 percent higher probability of a takeoff. In contrast, a one standard deviationincrease in equity outflows (inflows) is associated with a 47 percent (17 percent) decline in the probabilityof a takeoff. A one standard deviation improvement in commodity terms of trade is associated with 28percent higher takeoff probability.
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Bibliographic InfoPaper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt79f5144f.
Date of creation: 05 Jul 2011
Date of revision:
Social and Behavioral Sciences;
Other versions of this item:
- Joshua Aizenman & Vladyslav Sushko, 2011. "Capital flows: Catalyst or Hindrance to economic takeoffs?," NBER Working Papers 17258, National Bureau of Economic Research, Inc.
- F15 - International Economics - - Trade - - - Economic Integration
- 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
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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