Research Summary
Research Summary
Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation (joint with Sebnem Kalemli-Ozcan and Vadym Volosovych)
By: Laura Alfaro
Description
We examine the role of different explanations for the lack of
flows of capital from rich to poor countries -- the Lucas paradox
-- in an empirical framework. Broadly, the theoretical
explanations for this paradox include differences in fundamentals
affecting the production structure versus capital market
imperfections. Our empirical evidence, based on cross-country
regressions, shows that for the period 1971-1998, institutional
quality, which is a fundamental, is the most important causal variable explaining the Lucas
paradox. Human capital and asymmetric information do play a role
as determinants of capital flows but these variables cannot
account for the paradox.
Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation