Growing Up with Capital Flows

Ashoka Mody and Antu Murshid

No 2002/075, IMF Working Papers from International Monetary Fund

Abstract: In a sample of 60 developing countries, we find evidence of a strong-almost one-to-one-relationship between capital inflows and domestic investment. However, this relationship has evolved over time. While growing financial integration with the rest of the world has increased access to foreign private capital, the relationship between foreign capital and domestic investment has weakened, reflecting changes in the composition of inflows, offsetting outflows, and increased foreign-currency reserve requirements. In contrast, better policies have not only brought in more capital but also, especially for foreign direct investment, have tended to strengthen the relationship between foreign capital and domestic investment.

Keywords: WP; capital flow; flows-investment relationship; flow relationship; portfolio flow; capital control; Capital inflows; domestic investment; financial integration; FDI flow; terms of trade; Capital flows; Foreign direct investment; Capital account; East Asia; South Asia; Global (search for similar items in EconPapers)
Pages: 32
Date: 2002-04-01
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Citations: View citations in EconPapers (60)

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Journal Article: Growing up with capital flows (2005)
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