DP1400 | Are Capital Flows Consistent with the Neoclassical Growth Model? Evidence from a Cross-section of Developing Countries

Publication Date

31/05/1996

JEL Code(s)

Keyword(s)

Programme Area(s)

Abstract

We identify the determinants of capital movements in an ?augmented-Solow? model where capital mobility is restricted to a subset of capital assets. We then test the prediction of the neoclassical model and find that it is consistent with the evidence on net capital flows in a cross-section of developing countries over the period 1960?82. We find that this is no longer true after 1982, however: the episodes of foreign debt repudiation and the world financial crisis of the early 1980s are the most natural candidates for an explanation of this pattern.