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Capital Flows and Growth in Developing Countries: Recent Empirical Evidence

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  • Marcelo Soto

Abstract

Are capital inflows associated with faster income growth? There are a large number of empirical studies that identify the most relevant determinants of a country’s growth rate. However, this literature has not explored the growth impact of the various types of capital inflows. The present study analyses the effects of the different components of private capital inflows on the growth of 44 developing countries. A dynamic panel with yearly data is estimated during the 1986-97 period. After controlling for the variables traditionally used in growth regressions, the following main conclusions emerge. First, foreign direct investment and portfolio equity flows exhibit a robust positive correlation with growth. Second, portfolio bond flows are not significantly linked to economic growth. Finally, in economies with undercapitalised banking systems, bank-related inflows are negatively correlated with the growth rate. This result holds for both short- and long-term bank-related ... Les entrées de capitaux vont-elles de pair avec une accélération de la croissance des revenus ? Nombreuses sont les études empiriques qui identifient les principaux déterminants du taux de croissance d’un pays. Néanmoins, ces travaux n’ont pas étudié l’incidence sur la croissance des différents types d’entrées de capitaux. Ce Document analyse les effets sur la croissance des diverses composantes des entrées de capitaux privés pour 44 pays en développement. Une série dynamique de données annuelles est estimée sur la période 1986-97. Après neutralisation des variables généralement utilisées dans les régressions de croissance, plusieurs conclusions se dégagent : tout d’abord, l’investissement direct étranger et les prises de participation (flux de portefeuille en actions) sont corrélés de façon positive et robuste avec la croissance. Ensuite, les flux de portefeuille en obligations ne montrent pas de liens significatifs avec la croissance. Enfin, dans les économies dont le système ...

Suggested Citation

  • Marcelo Soto, 2000. "Capital Flows and Growth in Developing Countries: Recent Empirical Evidence," OECD Development Centre Working Papers 160, OECD Publishing.
  • Handle: RePEc:oec:devaaa:160-en
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    File URL: http://dx.doi.org/10.1787/633871307443
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    Cited by:

    1. Hudea Caraman, Oana Simona & Stancu, Stelian, 2012. "Foreign Direct Investments, Technology Transfer and Economic Growth. A Panel Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, pages 85-102.
    2. Tng Boon Hwa & Mala Raghavan & Teh Tian Huey, 2017. "Macroeconomic surveillance of portfolio flows and its real effects: Malaysia's experience," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Statistical implications of the new financial landscape, volume 43 Bank for International Settlements.
    3. Kevin Cowan & José De Gregorio, 2007. "International Borrowing, Capital Controls, and the Exchange Rate: Lessons from Chile," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 241-296 National Bureau of Economic Research, Inc.
    4. Roghieh Gholami & Sang-Yong Tom Lee & Almas Heshmati, 2006. "The Causal Relationship Between Information and Communication Technology and Foreign Direct Investment," The World Economy, Wiley Blackwell, pages 43-62.
    5. Paula Neto & António Brandão & António Cerqueira, 2008. "The Impact of FDI, Cross Border Mergers and Acquisitions and Greenfield Investments on Economic Growth," FEP Working Papers 291, Universidade do Porto, Faculdade de Economia do Porto.
    6. Selin Sayek & Laura Alfaro & Areendam Chanda & Sebnem Kalemli-Ozcan, 2003. "FDI Spillovers, Financial Markets, and Economic Development," IMF Working Papers 03/186, International Monetary Fund.
    7. Almas Heshmati & Subal C. Kumbhakar, 2010. "Technical Change and Total Factor Productivity Growth: The Case of Chinese Provinces," TEMEP Discussion Papers 201054, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Feb 2010.
    8. Dilli Raj Khanal & Prakash Kumar Shrestha, 2008. "Trade and investment linkages and coordination in Nepal: Impact on productivity and exports and business perceptions," Working Papers 5208, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    9. Nunnenkamp, Peter & Pant, Manoj, 2003. "Why the case for a multilateral agreement on investment is weak," Kiel Discussion Papers 400, Kiel Institute for the World Economy (IfW).
    10. Andrew van Hulten & Michael Webber, 2010. "Do developing countries need 'good' institutions and policies and deep financial markets to benefit from capital account liberalization?," Journal of Economic Geography, Oxford University Press, vol. 10(2), pages 283-319, March.
    11. Almas Heshmati & Subal C. Kumbhakar, 2010. "Technical Change and Total Factor Productivity Growth: The Case of Chinese Provinces," TEMEP Discussion Papers 201054, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Feb 2010.
    12. Andrew Sumner & Meera Tiwari, 2005. "Poverty and economic policy: what happens when researchers disagree?," Journal of International Development, John Wiley & Sons, Ltd., pages 791-801.
    13. Eicher, Theo S. & Helfman, Lindy & Lenkoski, Alex, 2012. "Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias," Journal of Macroeconomics, Elsevier, pages 637-651.
    14. Ozturk, I., 2007. "Foreign Direct Investment – Growht Nexus: A Review of The Recent Literature," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 4(2), pages 79-98.
    15. Shiu, Alice & Heshmati, Almas, 2006. "Technical Change and Total Factor Productivity Growth for Chinese Provinces: A Panel Data Analysis," Ratio Working Papers 98, The Ratio Institute.
    16. Eicher, Theo S. & Helfman, Lindy & Lenkoski, Alex, 2012. "Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias," Journal of Macroeconomics, Elsevier, pages 637-651.
    17. Laureti, Lucio & Postiglione, Paolo, 2005. "The effects of capital inflows on the economic growth in the Med Area," Journal of Policy Modeling, Elsevier, pages 839-851.

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