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Increasing Private Capital Flows To Developing Countries: The Role Of Physical And Financial Infrastructure In 58 Countries, 1970-2003

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  • Tidiane KINDA

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 in long-run. The results also show that for Sub-Saharan African countries, better physical infrastructure tends to attract more FDI.

Suggested Citation

  • Tidiane KINDA, 2010. "Increasing Private Capital Flows To Developing Countries: The Role Of Physical And Financial Infrastructure In 58 Countries, 1970-2003," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
  • Handle: RePEc:eaa:aeinde:v:10:y:2010:i:2_5
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    References listed on IDEAS

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    Cited by:

    1. Bah, El-hadj M. & Cooper, Geoff, 2012. "Constraints to the Growth of Small Firms in Northern Myanmar," MPRA Paper 39819, University Library of Munich, Germany.
    2. René Tapsoba, 2012. "Does Inflation Targeting Matter for Attracting Foreign Direct Investment into Developing Countries?," Working Papers halshs-00667203, HAL.
    3. Bah, El-hadj M. & Cooper, Geoff, 2015. "Constraints to the growth of small firms in Northwest Myanmar," Journal of Asian Economics, Elsevier, pages 108-125.

    More about this item

    Keywords

    Foreign Direct Investment; Portfolio Investment; Physical Infrastructure; Financial Development; Three Stage Least Squares.;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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