Working Paper: NBER ID: w17502
Authors: Joshua Aizenman; Yothin Jinjarak; Donghyun Park
Abstract: We investigate the relationship between economic growth and lagged international capital flows, disaggregated into FDI, portfolio investment, equity investment, and short-term debt. We follow about 100 countries during 1990-2010 when emerging markets became more integrated into the international financial system. We look at the relationship both before and after the global crisis. Our study reveals a complex and mixed picture. The relationship between growth and lagged capital flows depends on the type of flows, economic structure, and global growth patterns. We find a large and robust relationship between FDI - both inflows and outflows - and growth. The relationship between growth and equity flows is smaller and less stable. Finally, the relationship between growth and short-term debt is nil before the crisis, and negative during the crisis.
Keywords: Capital Flows; Economic Growth; FDI; Portfolio Investment; Financial Integration
JEL Codes: F21; F32; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FDI inflows (F21) | economic growth (O49) |
| FDI outflows (F21) | economic growth (O49) |
| stable exchange rates + monetary independence + FDI inflows (F33) | economic growth (O49) |
| stable exchange rates + monetary independence + FDI outflows (F33) | economic growth (O49) |
| equity investment (G24) | economic growth (O49) |
| short-term debt (H63) | economic growth (O49) |