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The effect of capital inflows on the imports of capital goods in developing countries

Author

Listed:
  • Jan Fidrmuc

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Khusrav Gaibulloev

    (Department of Economics, American University of Sharjah)

  • Ali Mirzaei

    (Department of Economics, American University of Sharjah)

  • Tomoe Moore

    (Brunel University London [Uxbridge])

Abstract

This paper examines the relationship between capital inflows and import of capital goods to credit-constrained industries in developing countries. Using data of 11 industrial sectors in 57 countries for 2000–2020, we find that financially dependent industries import disproportionately more capital goods if they operate in countries that receive more foreign funds. A host of robustness tests, including instrumental variables estimation, confirm our main finding. We also document that: (i) the established nexus breaks down during the global financial crisis, (ii) the observed relationship is mainly due to the direct investment via equity, and (iii) host countries tend to import relatively more capital goods from G7 economies. Overall, our results suggest that one channel through which capital inflows affect economic growth is by alleviating firms' financial constraints, thereby enabling firms to acquire more advanced capital goods.

Suggested Citation

  • Jan Fidrmuc & Khusrav Gaibulloev & Ali Mirzaei & Tomoe Moore, 2024. "The effect of capital inflows on the imports of capital goods in developing countries," Post-Print hal-04544148, HAL.
    • Handle: RePEc:hal:journl:hal-04544148
    DOI: 10.1016/j.jcorpfin.2023.102531
    as

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