Fueling or Following Growth? Causal Effects of Capital Inflows on Recipient Economies
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Summary:
Identifying the causal impact of capital inflows on growth and development has been a perennial challenge. This paper proposes a new way to investigate the effect of capital flows on recipient emerging and developing economies, using shift-share instruments and correcting for indirect flows. It finds a significantly beneficial effect of loan and bond inflows on economic performance, which materializes after a few years. It also finds some confirmation that the absorptive capacity of recipient economies depends on their fundamentals.
Series:
Working Paper No. 2024/015
Subject:
Balance of payments Capital flows Capital inflows Foreign direct investment Institutional View on capital flows Portfolio investment
Frequency:
regular
English
Publication Date:
January 19, 2024
ISBN/ISSN:
9798400265426/1018-5941
Stock No:
WPIEA2024015
Format:
Paper
Pages:
39
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