| Abstract: |
We document the recent phenomenon of "uphill" flows of capital from
nonindustrial to industrial countries and analyze whether this pattern of
capital flows has hurt growth in nonindustrial economies that export capital.
Surprisingly, we find that there is a positive correlation between current
account balances and growth among nonindustrial countries, implying that a
reduced reliance on foreign capital is associated with higher growth. This
result is weaker when we use panel data rather than cross-sectional averages
over long periods of time, but in no case do we find any evidence that an
increase in foreign capital inflows directly boosts growth. What explains
these results, which are contrary to the predictions of conventional
theoretical models? We provide some evidence that even successful developing
countries have limited absorptive capacity for foreign resources, either
because their financial markets are underdeveloped, or because their economies
are prone to overvaluation caused by rapid capital inflows. |