Portfolio Flows, Volatility and Growth
42 Pages Posted: 7 Dec 2003
Date Written: May 2004
Abstract
We study the realized openness to portfolio flows of economically more- developed and less-developed countries as it affects future GDP growth. Outflows of a country's funds into U.S. securities are predictive of GDP growth. Both inflows and outflows of funds via local equity securities are predictive of growth but only for more-developed countries. Country-specific volatility in flows does not detract from growth, and volatility in world-wide flows precedes growth. This is evidence that financial openness enables country's economic development, but only if the country s already economically and financially developed. The evidence is consistent with thinking that the benefits of financial integration accrue mainly in the presence of well-developed sets of financial, legal, and political institutions.
Keywords: Portfolio Flows, Financial Integration, Growth, Economic Development
JEL Classification: F21, F36, G15, G38
Suggested Citation: Suggested Citation
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