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Investment and Growth in Rich and Poor Countries

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  • Yin-Wong Cheung
  • Michael P. Dooley
  • Vladyslav Sushko

Abstract

This paper revisits the association between investment and growth. The empirical findings highlight substantial heterogeneity for the effect of investment on growth and suggest a possible negative association. Results based on a battery of cross-sectional and time-series regressions show that the link between investment and growth has weakened over time and that investment in high-income countries is more likely to have a negative effect on growth. The adverse effect for high-income countries appears to have increased over time. An implication is that uphill capital flows could be associated with negative or zero returns. The result is robust to the presence of control variables that are commonly included in growth studies.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17788.

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Date of creation: Jan 2012
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Handle: RePEc:nbr:nberwo:17788

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  1. Caballero, Ricardo J. & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," Scholarly Articles 3229094, Harvard University Department of Economics.
  2. Gourinchas, Pierre-Olivier & Jeanne, Olivier, 2007. "Capital Flows to Developing Countries: The Allocation Puzzle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6561, C.E.P.R. Discussion Papers.
  3. Joshua Aizenman & Brian Pinto & Artur Radziwill, 2004. "Sources for Financing Domestic Capital -- Is Foreign Saving a Viable Option for Developing Countries?," NBER Working Papers 10624, National Bureau of Economic Research, Inc.
  4. Philippe Aghion & Diego Comin & Peter Howitt & Isabel Tecu, 2009. "When Does Domestic Saving Matter for Economic Growth?," Harvard Business School Working Papers 09-080, Harvard Business School.
  5. Sebnem Kalemli-Ozcan & Laura Alfaro & Vadym Volosovych, 2003. "Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation," Working Papers, Department of Economics, University of Houston 2003-01, Department of Economics, University of Houston.
  6. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 90(358), pages 314-29, June.
  7. Francesco Caselli & James Feyrer, 2006. "The Marginal Product of Capital," CEP Discussion Papers dp0735, Centre for Economic Performance, LSE.
  8. Charles R. Hulten, 2009. "Growth Accounting," NBER Working Papers 15341, National Bureau of Economic Research, Inc.
  9. Orazio P. Attanasio & Lucio Picci & Antonello E. Scorcu, 2000. "Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 182-211, May.
  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
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Cited by:
  1. Aizenman, Joshua & Pinto, Brian & Sushko, Vladyslav, 2013. "Financial sector ups and downs and the real sector in the open economy: Up by the stairs, down by the parachute," Emerging Markets Review, Elsevier, Elsevier, vol. 16(C), pages 1-30.
  2. Huh, Hyeon-seung & Kim, David, 2013. "An empirical test of exogenous versus endogenous growth models for the G-7 countries," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 262-272.
  3. Lucia Ramirez & Gabriela Mordecki, 2014. "Investment, growth and employment: VECM for Uruguay," Documentos de Trabajo (working papers) 14-07, Instituto de Economía - IECON.

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