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Sovereigns, Upstream Capital Flows, and Global Imbalances

  • Alfaro, Laura
  • Kalemli-Ozcan, Sebnem
  • Volosovych, Vadym

The paper presents new stylized facts on the direction of capital flows. We find (i) international capital flows net of government debt and/or official aid are positively correlated with growth; (ii) sovereign debt flows are negatively correlated with growth only if debt is financed by another sovereign; (iii) public savings are robustly positively correlated with growth as opposed to private savings. Sovereign to sovereign transactions can fully account for upstream capital flows and global imbalances. These empirical facts contradict the conventional wisdom and constitute a challenge for existing theories.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8648.

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Date of creation: Nov 2011
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Handle: RePEc:cpr:ceprdp:8648
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