Capital Flows and Economic Growth in the Era of Financial Integration and Crisis, 1990-2010

Joshua Aizenman, Yothin Jinjarak, Donghyun Park

NBER Working Paper No. 17502
Issued in October 2011
NBER Program(s):   ITI

We investigate the relationship between economic growth and lagged international capital flows, disaggregated into FDI, portfolio investment, equity investment, and short-term debt. We follow about 100 countries during 1990-2010 when emerging markets became more integrated into the international financial system. We look at the relationship both before and after the global crisis. Our study reveals a complex and mixed picture. The relationship between growth and lagged capital flows depends on the type of flows, economic structure, and global growth patterns. We find a large and robust relationship between FDI – both inflows and outflows – and growth. The relationship between growth and equity flows is smaller and less stable. Finally, the relationship between growth and short-term debt is nil before the crisis, and negative during the crisis.

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Acknowledgments

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