Institutions, capital flows and financial integration

The focus of this paper is on capital flows from developed to less developed countries and in particular on the question of why such flows are not much larger. I first outline the theoretical arguments with regard to such flows and then go on to review the historical evidence on international financ...

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Bibliographic Details
Published in:Journal of international money and finance 2006-04, Vol.25 (3), p.358-369
Main Author: Lothian, James R.
Format: Article
Language:English
Subjects:
Capital flow
Capital flows
Capital movement
Economic development
Economic growth
Economic integration
Economic policy
Economic theory
Emerging markets
Financial economics
Financial integration
Financial systems
Integration
International finance
International monetary relations
International political economy
Political institutions
Studies
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Summary:The focus of this paper is on capital flows from developed to less developed countries and in particular on the question of why such flows are not much larger. I first outline the theoretical arguments with regard to such flows and then go on to review the historical evidence on international financial integration more generally. I then turn to the related literature on economic development, which over the past decade has shifted its emphasis from technology and capital accumulation to the underlying institutional factors that affect investment. I present evidence that such factors also affect to rich-to-poor country capital flows. Good policies – pursuit of price stability, fewer direct interventions and sound institutional structures – are accompanied by higher capital flows and bad policies by lower capital flows.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2006.01.001