Growth from International Capital Flows: The Role of Volatility Regimes

Author/Editor:

Antu Panini Murshid ; Ashoka Mody

Publication Date:

April 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Recent commentary has downplayed the growth dividend from international financial integration, highlighting the possibly negative correlation between capital inflows and long-run growth. This paper presents new evidence consistent with standard economic theory and a more benign interpretation of cross-border private capital flows. The key observation is that a country’s growth volatility changes over time. With volatility below a threshold, an inflow of foreign capital has promoted growth. However, during periods of volatile growth, more flows have been associated with slower growth. Volatility levels and changes reflect an interaction of domestic production and institutional structures with global factors.

Series:

Working Paper No. 2011/090

Subject:

Capital flows Capital inflows Current account Current account balance Private capital flows

English

Publication Date:

April 1, 2011

ISBN/ISSN:

9781455253296/1018-5941

Stock No:

WPIEA2011090

Pages:

41

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