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Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America

Year: 2018

Type: article

Abstract: After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns. Surprisingly, we find that distortions in labor markets, rather than domestic or international capital markets, account for the bulk of these flows. Labor market distortions that indirectly depress investment incentives by lowering equilibrium labor supply explain two-thirds of observed flows, while improvement in these distortions over time accounts for much of Asia's rapid growth. (JEL E22, E24, E32, F21, F32, O16, O47)

Source: American Economic Review

DOI: 10.1257/aer.20151510

Authors: Lee E. Ohanian, Paulina Restrepo-Echavarria, Mark L. J. Wright

Institutions: Hoover Institution, University of California, Los Angeles, Stanford University, Federal Reserve Bank of St. Louis, Federal Reserve Bank of Minneapolis

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: bronze

OpenAlex ID: W2178351822

FWCI: 3.308

Cites: 118

Cited by: 26

Related to: 10