Capital Flows to Developing Countries: The Allocation Puzzle

56 Pages Posted: 6 Jun 2008

See all articles by Pierre-Olivier Gourinchas

Pierre-Olivier Gourinchas

University of California, Berkeley - Department of Economics; University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Olivier Jeanne

International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2007

Abstract

According to the consensus view in growth and development economics, cross country differences in per-capita income largely reflect differences in countries' total factor productivity. We argue that this view has powerful implications for patterns of capital flows: everything else equal, countries with faster productivity growth should invest more, and attract more foreign capital. We then show that the pattern of net capital flows across developing countries is not consistent with this prediction. If anything, capital seems to flow more to countries that invest and grow less. We argue that this result - which we call the allocation puzzle - constitutes an important challenge for economic research, and discuss some possible research avenues to solve the puzzle.

Keywords: capital flows, Lucas puzzle

JEL Classification: F21, F36, F43

Suggested Citation

Gourinchas, Pierre-Olivier and Jeanne, Olivier, Capital Flows to Developing Countries: The Allocation Puzzle (November 2007). CEPR Discussion Paper No. DP6561, Available at SSRN: https://ssrn.com/abstract=1140088

Pierre-Olivier Gourinchas (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://sites.google.com/view/pgourinchas

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://sites.google.com/view/pgourinchas

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/pierre-olivier_gourinchas

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org/active/publications/discussion_papers/authorlist.php?ident=136737

Olivier Jeanne

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Room 10-548L
Washington, DC 20431
United States
202-623-4272 (Phone)
202-623-6334 (Fax)

Ecole Nationale des Ponts et Chaussees (ENPC) ( email )

28 rue des Saints-Pres
75007 Paris
France
+33 1 44 58 28 76 (Phone)
+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
9
Abstract Views
1,786
PlumX Metrics