Sovereigns, Upstream Capital Flows and Global Imbalances

Tinbergen Institute Discussion Paper No. 11-126/2

72 Pages Posted: 5 Sep 2011

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

Vadym Volosovych

Erasmus University Rotterdam (EUR)

Multiple version iconThere are 4 versions of this paper

Date Written: August 31, 2011

Abstract

We decompose capital flows - both debt and equity - into public and private components and study their relationship with productivity growth. This exercise reveals that international capital flows are mainly shaped by government decisions and sovereign to sovereign transactions. Specifically, we show: (i) international capital flows net of government debt are positively correlated with growth and allocated according to the neoclassical predictions; (ii) international capital flows net of official aid flows, which are mostly accounted as debt, are also positively correlated with productivity growth consistent with the predictions of the neoclassical model; (iii) public debt flows are negatively correlated with growth only if government debt is financed by another sovereign and not by private lenders. Our results show that the failure to consider official flows as the main driver of uphill flows and global imbalances is an important shortcoming of the recent literature.

Keywords: current account, aid/government debt, reserves, puzzles of flows, productivity

JEL Classification: F21, F41, O1

Suggested Citation

Alfaro, Laura and Kalemli-Ozcan, Sebnem and Volosovych, Vadym, Sovereigns, Upstream Capital Flows and Global Imbalances (August 31, 2011). Tinbergen Institute Discussion Paper No. 11-126/2, Available at SSRN: https://ssrn.com/abstract=1922741 or http://dx.doi.org/10.2139/ssrn.1922741

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Koc University, Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

Vadym Volosovych

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
Room E2-31
3000 DR Rotterdam, 3062PA
Netherlands
+31 10 408 1286 (Phone)
+31 10 408 9165 (Fax)

HOME PAGE: http://https://www.eur.nl/people/vadym-volosovych/

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

Paper statistics

Downloads
34
Abstract Views
707
PlumX Metrics