Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/122028
Authors: 
MacDonald, Margaux
Year of Publication: 
2015
Series/Report no.: 
Queen's Economics Department Working Paper 1345
Abstract: 
Recent evidence from developing and emerging economies shows a negative correlation between growth and net capital inflows, a contradiction to neoclassical growth theory. I provide updated and disaggregated evidence on the origins of this puzzle. An analysis of the components of capital flows and of gross portfolio positions shows that foreign direct investment is directed towards countries with the highest growth rates, but that portfolio investment outflows exceed these inflows. Liberalized capital accounts further exacerbate this pattern. My results suggest a desire for international portfolio diversification in liquid assets by fast growing countries lies at the heart of the puzzle.
Subjects: 
Gross capital flows
Net capital flows
Allocation puzzle
Productivity growth
JEL: 
F21
F41
F43
Document Type: 
Working Paper

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