Article | Journal of International Economics | May 2007

Capital Flows and Capital Goods

by Laura Alfaro and Eliza Hammel

Abstract

Studying the relation between equity market liberalization and imports of capital goods, we examine one channel through which international financial integration can promote growth. For the period 1980–1997, we find that after controlling for other policies and fundamentals, stock market liberalizations are associated with a significant increase in the share of imports of machinery and equipment. We hypothesize this can be attributed to the consequences of financial integration, which allows access to foreign capital, and provide evidence consistent with this channel. Our results suggest that increased access to international capital allows countries to enjoy the benefits embodied in capital goods.

Keywords: Cash Flow; Equity; Financial Markets; Economy; Distribution Channels; Machinery and Machining; Capital;

Citation:

Alfaro, Laura, and Eliza Hammel. "Capital Flows and Capital Goods." Journal of International Economics 72, no. 1 (May 2007): 128–150. (Link to working paper version.)