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

Author(s): Stefano Manzocchi, Philippe Martin
Publication Date: May 1996
Keyword(s): Capital Movements, Developing Countries, Growth Theory
JEL(s): F21, O30, O40
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1400

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.