Template-Type: ReDIF-Paper 1.0
Author-Name:  Sebnem Kalemli-Ozcan
Author-X-Name-First: Sebnem
Author-X-Name-Last: Kalemli-Ozcan
Author-Email:  sebnem.kalemli-ozcan@mail.uh.edu
Author-Workplace-Name: Department of Economics, University of Houston
Author-Name:  Laura Alfaro	
Author-X-Name-First: Laura
Author-X-Name-Last: Alfaro
Author-Workplace-Name: Department of Economics, Harvard Business School
Author-Name:  Vadym Volosovych	
Author-X-Name-First: Vadym
Author-X-Name-Last: Volosovych
Author-Workplace-Name: Department of Economics, University of Houston
Title:  Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation
Abstract: 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 fun-
damentals 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 em-
phasize 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.
Length:  68 pages
Creation-Date:  2003-12
File-URL: http://www.uh.edu/econpapers/RePEc/hou/wpaper/2003-01.pdf
File-Format: Application/pdf
Number: 2003-01
Classification-JEL: F21, F41, O1
Keywords: capital inflows, fundamentals, institutions, international capital market imperfections,
neoclassical model
Handle: RePEc:hou:wpaper:2003-01