TY  - JOUR
AU  - Gourinchas,Pierre-Olivier
AU  - Jeanne,Olivier
TI  - Capital Flows to Developing Countries: The Allocation Puzzle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13602
PY  - 2007
Y2  - November 2007
UR  - http://www.nber.org/papers/w13602
L1  - http://www.nber.org/papers/w13602.pdf
N1  - Author contact info:
Pierre-Olivier Gourinchas
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-0720
Fax: 510/642-6615
E-Mail: pog@econ.berkeley.edu

Olivier Jeanne
Department of Economics
Johns Hopkins University
454 Mergenthaler Hall
3400 N. Charles Street
Baltimore, MD 21218
Tel: 410/516-7604
Fax: 410/516-7600
E-Mail: ojeanne@jhu.edu
AB  - According to the consensus view in growth and development economics, cross country differences in per-capita income largely reflect differences in countries' total factor productivity. We argue that this view has powerful implications for patterns of capital flows: everything else equal, countries with faster productivity growth should invest more, and attract more foreign capital. We then show that the pattern of net capital flows across developing countries is not consistent with this prediction. If anything, capital seems to flow more to countries that invest and grow less. We argue that this result -- which we call the allocation puzzle -- constitutes an important challenge for economic research, and discuss some possible research avenues to solve the puzzle.
ER  -