Growing up with capital flows

Ashoka Mody, Antu Panini Murshid

Research output: Contribution to journalArticlepeer-review

144 Scopus citations

Abstract

We examine the capital flows-domestic investment relationship for 60 developing countries from 1979 to 1999. In the 1990s, even as liberalization attracted new flows, foreign capital stimulated less domestic investment than in the preceding decade. With greater financial integration, governments accumulated more international reserves and domestic residents diversified by investing abroad. Foreign investors were also motivated by diversification objectives rather than by unmet investment needs. Inflows were channeled increasingly through portfolio flows-or through foreign direct investment (FDI) with the characteristics of portfolio capital-resulting in weak investment stimulus. However, stronger policy environments strengthened the link between inflows and investment.

Original languageEnglish (US)
Pages (from-to)249-266
Number of pages18
JournalJournal of International Economics
Volume65
Issue number1
DOIs
StatePublished - Jan 2005
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Capital inflows
  • Domestic investment
  • International financial integration

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