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Growth From International Capital Flows

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  • Antu Panini Murshid
  • Ashoka Mody

Abstract

Recent commentary has downplayed the growth dividend from international financial integration, highlighting the possibly negative correlation between capital inflows and long-run growth. This paper presents new evidence consistent with standard economic theory and a more benign interpretation of cross-border private capital flows. The key observation is that a country’s growth volatility changes over time. With volatility below a threshold, an inflow of foreign capital has promoted growth. However, during periods of volatile growth, more flows have been associated with slower growth. Volatility levels and changes reflect an interaction of domestic production and institutional structures with global factors.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/90.

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Length: 41
Date of creation: 01 Apr 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/90

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Keywords: Capital flows; Capital inflows; Current account surpluses; Developing countries; Economic growth; Economic models; Foreign investment; current account; current account balance; private capital flows; private capital; foreign capital; official flows; foreign aid; current account deficit; international capital; capital account liberalization; private flows; capital inflow; foreign capital inflows; current account surplus; international capital flows; estimate of volatility; capital outflow; capital flow; current account deficits; currency crises; private capital inflows; commodity prices; capital movements; capital outflows; global capital flows; external liabilities; stock market; reserve bank; external volatility; official creditors; private credit; aggregate capital flows; current account balances; private inflows; export capital;

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  1. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
  2. Pierre-Olivier & Olivier Jeanne, 2009. "Capital Flows to Developing Countries: The Allocation Puzzle," Working Paper Series WP09-12, Peterson Institute for International Economics.
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Cited by:
  1. Erauskin, Iñaki, 2013. "The impact of financial openness on the size of utility-enhancing government," Economics Discussion Papers 2013-7, Kiel Institute for the World Economy.

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