We describe the patterns of international capital flows in the period 1970-2000. We then examine the determinants of capital flows and capital flow volatility during this period. We find that institutional quality is an important determinant of capital flows. Historical determinants of institutional quality have a direct effect on today's foreign investment. Policy plays a significant role in explaining the increase in the level of capital flows and their volatility. Local financial structure measured as the share of bank credit in total is associated with high volatility of capital flows..
Capital Flows in a Globalized Economy