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International capital flows and development: Financial openness matters

Author

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  • Reinhardt, Dennis
  • Ricci, Luca Antonio
  • Tressel, Thierry

Abstract

Does capital flow from rich to poor countries? We revisit the Lucas paradox to account for the role of capital account openness. We find that, when accounting for such openness, the prediction of the neoclassical theory is empirically confirmed: among financially open economies, less developed countries tend to experience net capital inflows and more developed countries tend to experience net capital outflows. The results hold also when taking into account private flows, institutions, and numerous controls. We also show that reserve intervention has an effect on the current account only in financially open economies.

Suggested Citation

  • Reinhardt, Dennis & Ricci, Luca Antonio & Tressel, Thierry, 2013. "International capital flows and development: Financial openness matters," Journal of International Economics, Elsevier, vol. 91(2), pages 235-251.
    • Handle: RePEc:eee:inecon:v:91:y:2013:i:2:p:235-251
    DOI: 10.1016/j.jinteco.2013.07.006
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    More about this item

    Keywords

    Lucas paradox; Capital flows; Financial openness; Economic development;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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