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Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007

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  • Paulina Restrepo-Echavarria

    (Federal Reserve Bank of St Louis and The)

  • Mark Wright

    (Federal Reserve Bank of Chicago)

  • Lee Ohanian

    (University of California Los Angeles)

Abstract

Theory predicts that capital should flow to countries where economic growth and the return to capital is highest. However, in the post-World War II period, per-capita GDP grew almost three times faster in East Asia than in Latin America, yet capital flowed in greater quantities into Latin America. In this paper we propose a 3-country 2-sector growth model, augmented by 'wedges' to quantify and evaluate the importance of international capital market imperfections versus domestic imperfections in explaining this anomalous behavior of capital flows. We find that during the 1950's capital controls where important, but domestic conditions dominate. And contrary to what has been thought, after 1960 capital controls in Asia encouraged borrowing.

Suggested Citation

  • Paulina Restrepo-Echavarria & Mark Wright & Lee Ohanian, 2015. "Bad Investments and Missed Opportunities? Capital Flows to Asia and Latin America, 1950-2007," 2015 Meeting Papers 1377, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1377
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    2. Hung Ly-Dai, 2019. "Non-linear pattern of international capital flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(3), pages 575-600, August.
    3. Alexander Monge-Naranjo & Juan M. Sánchez & Raül Santaeulàlia-Llopis, 2018. "On the Global Misallocation of Human Capital," Working Papers 1037, Barcelona School of Economics.
    4. Matheus Cardoso Leal & Marcio Issao Nakane, 2022. "Brazilian economy in the 2000’s: A tale of two recessions," Working Papers, Department of Economics 2022_20, University of São Paulo (FEA-USP).
    5. Joseph Steinberg, 2019. "On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 200-223, January.
    6. Alexander Monge-Naranjo & Juan M. Sanchez & Raul Santaeulalia-Llopis & Faisal Sohail, 2019. "Should Capital Flow from Rich to Poor Countries?," Review, Federal Reserve Bank of St. Louis, vol. 101(4), pages 277-295.
    7. Pedro Brinca & João Ricardo Costa Filho & Francesca Loria, 2024. "Business cycle accounting: What have we learned so far?," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1276-1316, September.
    8. Ly-Dai, Hung, 2016. "Non-Linear Pattern of International Capital Flows," MPRA Paper 90236, University Library of Munich, Germany, revised 08 Oct 2018.

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    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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