Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation
Top Cited Papers
- 1 May 2008
- journal article
- Published by MIT Press in The Review of Economics and Statistics
- Vol. 90 (2), 347-368
- https://doi.org/10.1162/rest.90.2.347
Abstract
We examine the empirical role of different explanations for the lack of capital flows from rich to poor countries-the "Lucas Paradox." The theoretical explanations include cross-country differences in fundamentals affecting productivity, and capital market imperfections. We show that during 1970-2000, low institutional quality is the leading explanation. Improving Peru's institutional quality to Australia's level implies a quadrupling of foreign investment. Recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the specific mechanisms. Our results indicate that foreign investment might be a channel through which institutions affect long-run development. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.This publication has 28 references indexed in Scilit:
- Wealth Bias in the First Global Capital Market Boom, 1870–1913The Economic Journal, 2004
- Institutional causes, macroeconomic symptoms: volatility, crises and growthJournal of Monetary Economics, 2003
- Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income DistributionThe Quarterly Journal of Economics, 2002
- The Colonial Origins of Comparative Development: An Empirical InvestigationThe American Economic Review, 2001
- The Geography of Investment: Informed Trading and Asset PricesJournal of Political Economy, 2001
- A New Database on the Structure and Development of the Financial SectorThe World Bank Economic Review, 2000
- Home Bias at Home: Local Equity Preference in Domestic PortfoliosThe Journal of Finance, 1999
- Inflows of Capital to Developing Countries in the 1990sJournal of Economic Perspectives, 1996
- North-South lending and endogenous domestic capital market inefficienciesJournal of Monetary Economics, 1990
- The Acceptability of Regression Solutions: Another Look at Computational AccuracyJournal of the American Statistical Association, 1976