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Increasing private capital flows to developing countries: The role of physical and financial infrastructure

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  • Kinda, Tidiane

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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19163.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:19163

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Related research

Keywords: Foreign direct investment; portfolio investment; physical infrastructure; financial development; three stage least squares.;

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References

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Cited by:
  1. International Monetary Fund, 2010. "FDI Flows to Low-Income Countries," IMF Working Papers 10/132, International Monetary Fund.
  2. 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.

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