Skip to main content
SpringerLink
Log in

International Capital Flows

  • Reference work entry
  • First Online:
Book cover The New Palgrave Dictionary of Economics

  • 415 Accesses

Abstract

Cross-border capital flows may be regarded as either too small (known as the Lucas paradox) or too big (against the Samuelson theorem of factor price equalization). The resolution to the conflicting views may require thinking out of the neoclassical box. In theory, international capital flows can promote economic growth, but the data do not reveal a strong, robust, and causal effect, particularly for developing countries. The theoretical results and the empirical patterns can be reconciled through either a composition effect or a threshold effect. Some emerging evidence suggests that the two effects are related.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 6,499.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 8,499.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Bibliography

  • Acemoglu, D., S. Johnson, and J. Robinson. 2001. The colonial origins of comparative development: An empirical investigation. American Economic Review 91: 1369–1401.

    Article  Google Scholar 

  • Albuquerque, R. 2003. The composition of international capital flows: Risk sharing through foreign direct investment. Journal of International Economics 1: 353–383.

    Article  Google Scholar 

  • Alfaro, L., S. Kalemli-Ozcan, and V. Volosovych. 2005. Why doesn’t capital flow from rich to poor countries? An empirical investigation. Working paper no. 11901. Cambridge, MA: NBER.

    Google Scholar 

  • Bekaert, G., C. Harvey, and C. Lundblad. 2005. Does financial liberalization spur growth? Journal of Financial Economics 77: 3–56.

    Article  Google Scholar 

  • Borensztein, E., J. de Gregorio, and J.-W. Lee. 1998. How does foreign direct investment affect economic growth? Journal of International Economics 45: 115–135.

    Article  Google Scholar 

  • Brainard, W., and R. Cooper. 1968. Uncertainty and diversification of international trade. Food Research Institute Studies in Agricultural Economics, Trade, and Development 8: 257–285.

    Google Scholar 

  • Caballero, R., E. Farhi, and P.-O. Gourinchas. 2005. An equilibrium model of global imbalances and low interest rate. Working paper. MIT and UC Berkeley.

    Google Scholar 

  • Eichengreen, B. 2001. Capital account liberalization: What do cross-country studies tell us? World Bank Economic Review 15: 341–365.

    Article  Google Scholar 

  • Faria, A., and P. Mauro. 2004. Institutions and the external capital structure of countries. Working paper no. 04/236. Washington, DC: IMF.

    Google Scholar 

  • Frankel, J., and A. Rose. 1996. Currency crashes in emerging markets: An empirical treatment. Journal of International Economics 41: 351–366.

    Article  Google Scholar 

  • Frankel, J., and S.-J. Wei. 2005. Managing macroeconomic crises: Policy lessons. In Managing economic volatility and crises: A practitioner’s guide, ed. J. Aizenman and B. Pinto. New York: Cambridge University Press.

    Google Scholar 

  • Gelos, G., and S.-J. Wei. 2005. Transparency and positions of international mutual funds. Journal of Finance 60: 2987–3020.

    Article  Google Scholar 

  • Gourinchas, P.-O., and O. Jeanne. 2004. On the benefits of capital account liberalization for emerging economies. Working paper. University of California, Berkeley, and the International Monetary Fund.

    Google Scholar 

  • Grossman, G., and E. Helpman. 1991. Trade, knowledge spillovers, and growth. European Economic Review 35: 517–526.

    Article  Google Scholar 

  • Hausmann, R., and E. Fernandez-Arias 2000. Foreign direct investment: Good cholesterol? Working paper no. 417. Research Department, Inter-America Development Bank.

    Google Scholar 

  • Henry, P. 2000. Stock market liberalization, economic reform, and emerging market equity prices. Journal of Finance 55: 529–564.

    Article  Google Scholar 

  • Imbs, J., and R. Wacziang. 2003. Stages of diversification. American Economic Review 93: 63–86.

    Article  Google Scholar 

  • IMF (International Monetary Fund). 2002. International investment position: A guide to data sources. Online. Available at www.imf.org/external/np/sta/iip/guide/ index.htm. Accessed 11 May 2006.

  • Ju, J., and S.-J. Wei. 2006. A solution to two paradoxes of international capital flows. NBER working paper, forthcoming. Cambridge: National Bureau of Economic Research.

    Google Scholar 

  • Kaufmann, D., A. Kraay, and M. Mastruzzi. 2003. Governance matters III: Governance indicators for 1996–2002. Policy research working paper no. 3106. Washington DC: The World Bank.

    Google Scholar 

  • Kose, M., E. Prasad, K. Rogoff, and S.-J. Wei. 2006. Financial globalization: A reappraisal and synthesis. Prepared for the Journal of Economic Literature.

    Google Scholar 

  • La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny. 1998. Law and finance. Journal of Political Economy 106: 1113–1155.

    Article  Google Scholar 

  • Lane, P., and G. Milesi-Ferreti. 2001. The external wealth of nations: Measures of foreign assets and liabilities for industrial and developing nations. Journal of International Economics 55: 263–294.

    Article  Google Scholar 

  • Lane, P., and G. Milesi-Ferreti. 2005. The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970–2004. Working paper no. 06/69. Washington, DC: IMF.

    Google Scholar 

  • Levine, R. 1996. Foreign banks, financial development, and economic growth. In International financial markets: Harmonization versus competition, ed. C. Barfield. Washington, DC: AEI Press.

    Google Scholar 

  • Levine, R. 2005. Finance and growth: Theory and evidence. In Handbook of economic growth, ed. P. Aghion and S. Durlauf. Amsterdam: North-Holland.

    Google Scholar 

  • Lucas, R. 1990. Why doesn’t capital flow from rich to poor countries? American Economic Review 80: 92–96.

    Google Scholar 

  • Mauro, P. 1995. Corruption and growth. Quarterly Journal of Economics 110: 681–712.

    Article  Google Scholar 

  • Obstfeld, M., and K. Rogoff. 2001. The six major puzzles in international macroeconomics: Is there a common cause? NBER Macroeconomics Annual 15: 339–390.

    Article  Google Scholar 

  • Papaioannou, E. 2005. What drives international bank flows? Politics, institutions and other determinants. Working paper no. 437. Frankfurt: European Central Bank.

    Google Scholar 

  • Prasad, E., K. Rogoff, S.-J. Wei, and M. Kose. 2003. Effects of financial globalization on developing countries: Some empirical evidence, Occasional paper no. 220. Washington, DC: IMF.

    Google Scholar 

  • Radelet, S., and J. Sachs. 1998. The east Asian financial crisis: Diagnosis, remedies, and prospects. Brookings Papers on Economic Activities 1998 (1): 1–74.

    Article  Google Scholar 

  • Rajan, R., and A. Subramanian. 2005. What undermines aid’s impact on growth? Working paper no. 05/126. Washington, DC: IMF.

    Google Scholar 

  • Reinhart, C., and K. Rogoff. 2004. Serial default and the ‘paradox’ of rich to poor capital flows. American Economic Review 94 (2): 52–58.

    Article  Google Scholar 

  • Rodrik, D., and A. Velasco. 1999. Short-term capital flows. Working paper no. 7364. Cambridge, MA: NBER.

    Google Scholar 

  • Samuelson, P. 1948. International trade and equalization of factor prices. Economic Journal 58: 163–184.

    Article  Google Scholar 

  • Smarzynska, B., and S.-J. Wei 2000. Corruption and the composition of foreign direct investment: Firm-level evidence. Working paper no. 7969. Cambridge, MA: NBER.

    Google Scholar 

  • Stulz, R. 1999. Globalization of equity markets and the cost of capital. Working paper no. 7021. Cambridge, MA: NBER.

    Google Scholar 

  • Tytell, I., and S.-J. Wei. 2004. Does financial globalization induce better macroeconomic policies? Working paper no. 04/84. Washington, DC: IMF.

    Google Scholar 

  • Wei, S.-J. 2000a. How taxing is corruption on international investors? Review of Economics and Statistics 82: 1–11.

    Article  Google Scholar 

  • Wei, S.-J. 2000b. Local corruption and global capital flows. Brookings Papers on Economic Activities 2000 (2): 303–354.

    Article  Google Scholar 

  • Wei, S.-J. 2001. Domestic crony capitalism and international fickle capital: Is there a connection? International Finance 4: 15–45.

    Article  Google Scholar 

  • Wei, S.-J. 2006. Connecting two views on financial globalization: Can we make further progress? Working paper.

    Google Scholar 

Download references

Acknowledgment

The author is grateful to Andre Faria, Jiandong Ju, Ayhan Kose, Paolo Mauro, Gian Maria Milesi-Ferretti, Romain Ranciere, Kenneth Rogoff, and Irina Tytell for helpful discussion, and Yuanyuan Chen and Patricia Medina for capable research and editorial assistance. The views expressed in this article are the author’s own, and do not reflect those of the IMF or any other organization he is associated with.

Author information

Authors and Affiliations

  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    Shang-Jin Wei

Authors
  1. Shang-Jin Wei
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Copyright information

© 2018 Macmillan Publishers Ltd.

About this entry

Check for updates. Verify currency and authenticity via CrossMark

Cite this entry

Wei, SJ. (2018). International Capital Flows. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_1058

Download citation

Publish with us

Policies and ethics

Search

Navigation