Working Paper: NBER ID: w14051
Authors: Eswar S. Prasad; Raghuram Rajan
Abstract: Cross-country regressions suggest little connection from foreign capital inflows to more rapid economic growth for developing countries and emerging markets. This suggests that the lack of domestic savings is not the primary constraint on growth in these economies, as implicitly assumed in the benchmark neoclassical framework. We explore emerging new theories on both the costs and benefits of capital account liberalization, and suggest how one might adopt a pragmatic approach to the process.
Keywords: capital account liberalization; economic growth; foreign capital inflows; institutional development
JEL Codes: F21; F31; F36; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign capital inflows (F21) | Economic growth (O49) |
| Institutional quality (I24) | Economic growth (O49) |
| Financial openness (F30) | Economic growth (O49) |
| Favorable economic conditions (P17) | Economic growth (O49) |
| Substantial inflows (F21) | Overvalued exchange rates (F31) |
| Overvalued exchange rates (F31) | Impact on competitiveness (F69) |