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Growing Up with Capital Flows

  • Ashoka Mody
  • Antu Panini Murshid

In a sample of 60 developing countries, we find evidence of a strong-almost one-to-one-relationship between capital inflows and domestic investment. However, this relationship has evolved over time. While growing financial integration with the rest of the world has increased access to foreign private capital, the relationship between foreign capital and domestic investment has weakened, reflecting changes in the composition of inflows, offsetting outflows, and increased foreign-currency reserve requirements. In contrast, better policies have not only brought in more capital but also, especially for foreign direct investment, have tended to strengthen the relationship between foreign capital and domestic investment.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/75.

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Length: 32
Date of creation: 01 Apr 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/75
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