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Sovereigns, Upstream Capital Flows and Global Imbalances

Author

Listed:
  • Laura Alfaro

    (Harvard Business School, and NBER)

  • Sebnem Kalemli-Ozcan

    (Koc University, University of Houston, CEPR, and NBER)

  • Vadym Volosovych

    (Erasmus University Rotterdam, and ERIM)

Abstract

This discussion paper led to a publication in the 'Journal of the European Economic Association' , 12(5), 1240-1284. We decompose capital flows--both debt and equity--into public and private components and study their relationship with productivity growth. This exercise reveals that international capital flows are mainly shaped by government decisions and sovereign to sovereign transactions. Specifically, we show: (i) international capital flows net of government debt are positively correlated with growth and allocated according to the neoclassical predictions; (ii) international capital flows net of official aid flows, which are mostly accounted as debt, are also positively correlated with productivity growth consistent with the predictions of the neoclassical model; (iii) public debt flows are negatively correlated with growth only if government debt is financed by another sovereign and not by private lenders. Our results show that the failure to consider official flows as the main driver of uphill flows and global imbalances is an important shortcoming of the recent literature.

Suggested Citation

  • Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2011. "Sovereigns, Upstream Capital Flows and Global Imbalances," Tinbergen Institute Discussion Papers 11-126/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20110126
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    More about this item

    Keywords

    current account; aid/government debt; reserves; puzzles of flows; productivity;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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