Discussion paper

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

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.

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Citation

Martin, P and S Manzocchi (1996), ‘DP1400 Are Capital Flows Consistent with the Neoclassical Growth Model? Evidence from a Cross-section of Developing Countries‘, CEPR Discussion Paper No. 1400. CEPR Press, Paris & London. https://cepr.org/publications/dp1400