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Increasing Private Capital Flows to Developing Countries : The Role of Physical and Financial Infrastructure

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  • Tidiane Kinda

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

Abstract

Combining the classical “push-pull factors” and the “Lucas paradox” theoretical approaches, and taking into account the relationship between components of capital flows -through Three Stage Least Square (3SLS) estimations-, this paper shows that physical infrastructure and financial development positively affect Foreign Direct Investment (FDI) and portfolio investment in developing countries. The analysis highlights the importance of non-linearity effects when assessing the role of financial development for portfolio investment inflows. Lax monetary policy and excessive credit provision could weaken the financial system and significantly reduce portfolio investment flows. The results also show that for Sub-Saharan African countries, better physical infrastructure tends to attract more FDI.
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  • Tidiane Kinda, 2007. "Increasing Private Capital Flows to Developing Countries : The Role of Physical and Financial Infrastructure," Post-Print hal-00171934, HAL.
    • Handle: RePEc:hal:journl:hal-00171934
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    Cited by:

    1. Askandarou Cheik Diallo & Luc Jacolin & Isabelle Rabaud, 2021. "Foreign direct investment and domestic private investment in Sub-Saharan African countries: crowding-in or out?," Working Papers hal-03232985, HAL.
    2. Somrasri Yupho & Xianguo Huang, 2014. "Portfolio Capital Flows in Thailand: A Bayesian Model Averaging Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S2), pages 89-99.
    3. Ghosh, , Swati R. & Sugawara, Naotaka & Zalduendo, Juan, 2011. "Banking flows and financial crisis -- financial interconnectedness and basel III effects," Policy Research Working Paper Series 5769, The World Bank.
    4. Swati R. Ghosh & Naotaka Sugawara & Juan Zalduendo, 2012. "Banking Flows And Financial Crisis Financial Interconnectedness And Basel Iii Effects," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-32.
    5. International Monetary Fund, 2010. "FDI Flows to Low-Income Countries: Global Drivers and Growth Implications," IMF Working Papers 2010/132, International Monetary Fund.
    6. Donaubauer, Julian & Neumayer, Eric & Nunnenkamp, Peter, 2016. "Financial market development in host and source countries and its effects on bilateral FDI," Kiel Working Papers 2029, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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