What Makes International Capital Flows Promote Economic Growth? An International Cross-Country Analysis

32 Pages Posted: 7 Sep 2010

See all articles by Chung-Hua Shen

Chung-Hua Shen

National Taiwan University - Department of Finance

Chien-Chiang Lee

Nanchang University

Chi‐Chuan Lee

Beijing Normal University (BNU)

Abstract

This paper re-examines the relationship between international capital flows and economic growth within the context of various ‘conditional factors’ that possibly have the potential to influence such relationships. It achieves this by employing panel data for 80 countries that cover 1976–2007. International capital inflow is broken down into foreign direct investments (FDI) and foreign portfolio investments (FPI). We find interesting evidence that only FDI has a positive effect on growth and that FPI has an unfavorable, if not negative, effect on growth. The conditional variables of banking liberalization, high-income level, twin crises, lower corruption, and human capital mitigate the positive impacts of FDI on growth. In contrast, the middle-income level and good shareholder protection have a positive effect. As concerns FPI, the level of financial liberalization, being in a Latin American region, the wealth of countries, and market governance all influence the way that FPI affects growth, whereas the conditional variables of twin crises and human capital do not influence the effect of FPI on economic growth.

Suggested Citation

Shen, Chung-Hua and Lee, Chien-Chiang and Lee, Chi‐Chuan, What Makes International Capital Flows Promote Economic Growth? An International Cross-Country Analysis. Scottish Journal of Political Economy, Vol. 57, No. 5, pp. 515-546, November 2010, Available at SSRN: https://ssrn.com/abstract=1670377 or http://dx.doi.org/10.1111/j.1467-9485.2010.00529.x

Chung-Hua Shen

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

Chi‐Chuan Lee

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Guangdong 100875
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2
Abstract Views
559
PlumX Metrics