TY  - JOUR
AU  - Reinhart,Carmen M.
AU  - Rogoff,Kenneth S.
TI  - Serial Default and the "Paradox" of Rich to Poor Capital Flows
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10296
PY  - 2004
Y2  - February 2004
UR  - http://www.nber.org/papers/w10296
L1  - http://www.nber.org/papers/w10296.pdf
N1  - Author contact info:
Carmen M. Reinhart
Peterson Institute for International Economics
1750 Massachusetts Avenue, NW
Washington, DC 20036-1903
Tel: 202-454-1325
Fax: 202-659-3225
E-Mail: creinhart@piie.com

Kenneth S. Rogoff
Thomas D Cabot Professor of Public Policy
Economics Department
Harvard University
Littauer Center 216
Cambridge, MA 02138-3001
Tel: 617-495-4022
Fax: 617/495-7730
E-Mail: krogoff@harvard.edu
AB  - Lucas (1990) argued that it was a paradox that more capital does not flow from rich countries to poor countries. He rejected the standard explanation of expropriation risk and argued that paucity of capital flows to poor countries must instead be rooted in externalities in human capital formation favoring further investment in already capital rich countries. In this paper, we review the various explanations offered for this  paradox.' There is no doubt that there are many reasons why capital does not flow from rich to poor nations   yet the evidence we present suggests some explanations are more relevant than others. In particular, as long as the odds of non repayment are as high as 65 percent for some low income countries, credit risk seems like a far more compelling reason for the paucity of rich-poor capital flows. The true paradox may not be that too little capital flows from the wealthy to the poor nations, but that too much capital (especially debt) is channeled to  debt intolerant serial defaulters.
ER  -