Growing Up with Capital Flows
32 Pages Posted: 15 Feb 2006
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Growing Up with Capital Flows
Date Written: April 2002
Abstract
In a sample of 60 developing countries, we find evidence of a strongalmost one-to-onerelationship between capital inflows and domestic investment. However, this relationship has evolved over time. While growing financial integration with the rest of the world has increased access to foreign private capital, the relationship between foreign capital and domestic investment has weakened, reflecting changes in the composition of inflows, offsetting outflows, and increased foreign-currency reserve requirements. In contrast, better policies have not only brought in more capital but also, especially for foreign direct investment, have tended to strengthen the relationship between foreign capital and domestic investment.
Keywords: Capital inflows domestic investment financial integration
JEL Classification: F21 F30
Suggested Citation: Suggested Citation
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