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- Appendix C (Not for Publication): Where and why does capital ïow? In Alfaro, Kalemli-Ozcan, Volosovych (2008), we show that private foreign capital ïows from poor to rich countries (the Lucas Paradox) in a large sample of developed and developing countries during the last three decades. This negative correlation between capital ïows and the initial level of GDP per capita is robust for 1970â2000 but it goes away once we account for the effect of institutional quality. Institutions, representing long-run productivity, are the most important determinant of capital ïows and they can explain the Lucas Paradox.
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- Appendix D (Not for Publication): Robustness and Comparison to the Literature In this section we replicate the ïndings from the literature and reconcile our results with those ïndings. We use the exact sample as in Gourinchas and Jeanne (GJ) (2009), which includes our sample of developing countries where capital stocks are available (63 countries) plus Botswana, Gabon, Singapore, Hong-Kong. We also focus on the period 1980â2000 to compare the results exactly to their ïndings.
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- In Appendix Table 2R, we compute the capital ïows following GJ (2009) by adding the initial net external debt from LM to the sum of the current account balances from the IMF-IFS and normalize by the initial GDP (column 1). In the remainder of this table net capital ïows are computed as the change in the net external position from LM, normalized by the initial GDP. All variables are deïated.49 We also analyze the aidadjusted net ïows and the components of net capital ïows, where these components are deïned as before. Appendix Table 2R and Figures 3R and 4R, show similar results.
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- Our primary sources of the data on annual capital ïows are the International Financial Statistics database (IFS) issued by the International Monetary Fund (IMF), the Global Development Finance database (GDF) by the World Bank (WB), and the Development Assistance Committee online database (DAC) from the OECDâs Development Co-operation Directorate. We also use Lane and Milesi-Ferretti (2007) (LM) data.
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- Our results in this paper are fully consistent with our previous results. We show that capital is ïowing to productive places, measured as average growth, during the last three decades once we account for the fact that low-growth countries receive a lot of capital in the form of aid and public debt from other sovereigns or multinational bodies (sovereign-to-sovereign lending). Does this mean then there is also no Lucas puzzle within the developing countries? This would be the case if relatively poor countries are the growing ones within the developing country sample. In a sample of 90 developing and industrial countries between 1980â2004, Dollar and Kraay (2006) ïnd, after they control the outlier nature of China, that there is a negative relation between capital ïows and initial GDP per capita (no Lucas puzzle) and there is a positive relation between capital ïows and growth. Appendix Table 14 takes a look at this issue in our sample of developing countries.
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- Table 11: (Appendix Table) Net Capital Flows and Growth in the Whole World, 1980â 2004 (1) (2) Sample All Developing and Advanced OECD Countries Dependent Variable Net capital Aid-adjusted ïows net capital (-CA/GDP) ïows ([-CA-Aid]/GDP) Average per capita â.024 .822*** GDP growth (.232) (.267) Obs. 144 144 Notes: Robust standard errors are in parentheses. *** , **, * denote signiïcance at 1%, 5%, 10%. âNet capital ïows (-CA/GDP)â represents the average over 1980â2004 of the current account balance with the sign reversed as percentage of GDP. âAid-adjusted net capital ïows ([-CA-Aid]/GDP)â represents the average over 1980â2004 of the current account balance with the sign reversed as percentage of GDP minus the average over 1980â2004 of the annual changes in net overseas assistance as percentage of GDP.
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- total debt, aid) and GDP per capita is available during 90 percent of the time over 1980â 2004. In this sample, we also omit âislandsâ, countries with the average population less than 1 million.
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