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Capital Flows and Institutions

Author

Listed:
  • Igan, Deniz
  • Lauwers, Alexandre
  • Puy, Damien

Abstract

Consistent with an institutional quality channel of capital flows, we show that industries that are more dependent on ‘‘good’’ institutions grow relatively more after foreign capital flows into the private sector. The effects are stronger in countries further away from the institutional frontier, but they disappear and even turn negative in countries with very low institutional quality. Institution-dependent industries grow, however less when capital flows to the official sector. Our findings support the view that foreign investors can be, under certain conditions, a catalyst for institutional reform and that the relaxation of government budget constraints generally weakens structural reform incentives.

Suggested Citation

  • Igan, Deniz & Lauwers, Alexandre & Puy, Damien, 2022. "Capital Flows and Institutions," CEPR Discussion Papers 17527, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17527
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    2. Madeira, Carlos, 2024. "The impact of macroprudential policies on industrial growth," Journal of International Money and Finance, Elsevier, vol. 145(C).
    3. Carlos Cantù & Catherine Casanova & Rodrigo Alfaro & Fernando Chertman & Gerald Cisneros & Toni dos Santos & Roberto Lobato & Calixto Lopez & Facundo Luna & David Moreno & Miguel Sarmiento & Rafael Ni, 2022. "How capital inflows translate into new bank lending: tracing the mechanism in Latin America," BIS Working Papers 1051, Bank for International Settlements.
    4. Silve, Arthur & Verdier, Thierry, 2023. "The Dynastic Transmission of Power, Exit Options and the Coevolution of Rent-seeking Elites," CEPR Discussion Papers 18165, C.E.P.R. Discussion Papers.
    5. Ahmad, Muhammad Farooq & Lambert, Thomas & Martín-Flores, José M. & Romec, Arthur, 2024. "Does democracy shape international merger activity?," Journal of International Economics, Elsevier, vol. 152(C).
    6. Sini, Snow & Abdul-Rahim, A.S. & Chin, Lee & Said, Rusmawati & Sulaiman, Chindo, 2022. "Natural resources’ impact on capital flow and conflict relationship in Africa: A novel insight from GMM and quantile regression," Resources Policy, Elsevier, vol. 78(C).

    More about this item

    Keywords

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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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