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Why does not capital frlow from rich to poor countries? An Empirical investigation

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  • Laura Alfaro
  • Sebnem Kalemli-Ozcan
Abstract
We examine the role of different explanations for the lack of flows of capital from rich to poor countries---the Lucas paradox---in an empirical framework. Broadly speaking, the theoretical explanations for this paradox include differences in fundamentals affecting the production structure versus international capital market imperfections. Our cross-country regressions show that, for the period 1971$-$1998, institutional quality is the most important causal variable explaining the Lucas paradox. Human capital and asymmetric information play a role as determinants of capital inflows but these variables cannot fully account for the paradox

Suggested Citation

  • Laura Alfaro & Sebnem Kalemli-Ozcan, 2004. "Why does not capital frlow from rich to poor countries? An Empirical investigation," Econometric Society 2004 North American Summer Meetings 416, Econometric Society.
    • Handle: RePEc:ecm:nasm04:416
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    More about this item

    Keywords

    capital flows; Lucas paradox; fundamentals; market imperfections;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy

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