TY  - JOUR
AU  - Alfaro,Laura
AU  - Kalemli-Ozcan,Sebnem
AU  - Volosovych,Vadym
TI  - Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11901
PY  - 2005
Y2  - December 2005
UR  - http://www.nber.org/papers/w11901
L1  - http://www.nber.org/papers/w11901.pdf
N1  - Author contact info:
Laura Alfaro
Harvard Business School
Morgan Hall 263
Soldiers Field
Boston, MA 02163
Tel: 617/495-7981
Fax: 617/496-5985
E-Mail: lalfaro@hbs.edu

Sebnem Kalemli-Ozcan
Koc University
CASE 101
34450 Highway Rumelifeneri
Sariyer Istanbul
Turkey
E-Mail: sebnem.kalemli-ozcan@mail.uh.edu

Vadym Volosovych
Finance Group, Department of Business Economics
Erasmus University Rotterdam
Room H14-30
P.O. Box 1738
3000 DR Rotterdam, The Netherlands
Tel: +31 10 408-1326
Fax: +31 10 408-9165
E-Mail: volosovych@ese.eur.nl
AB  - We examine the empirical role of different explanations for the lack of flows of capital from rich to poor countries the "Lucas Paradox." The theoretical explanations include differences in fundamentals across countries and capital market imperfections. We show that during 1970-2000 low institutional quality is the leading explanation. For example, improving Peru's institutional quality to Australia's level, implies a quadrupling of foreign investment. Recent studies emphasize the role of institutions for achieving higher levels of income, but remain silent on the specific mechanisms. Our results indicate that foreign investment might be a channel through which institutions affect long-run development.
ER  -