Investment and Growth in Rich and Poor Countries
This paper revisits the association between investment and growth. The empirical findings highlight substantial heterogeneity for the effect of investment on growth and suggest a possible negative association. Results based on a battery of cross-sectional and time-series regressions show that the link between investment and growth has weakened over time and that investment in high-income countries is more likely to have a negative effect on growth. The adverse effect for high-income countries appears to have increased over time. An implication is that uphill capital flows could be associated with negative or zero returns. The result is robust to the presence of control variables that are commonly included in growth studies.
The views expressed herein are those of the authors and do not necessarily reflect the views of the Bank for International Settlements or the National Bureau of Economic Research. A substantial portion of the paper was completed while Sushko was at the University of California at Santa Cruz prior to joining the Bank for International Settlements.