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Serial Default and the
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This article reviewed the various explanations offered for the paradox that more capital does not flow from rich countries to poor countries and concluded that credit risk is a far more compelling reason for the paucity of rich-poor capital flows than expropriation risk.Abstract:
Lucas (1990) argued that it was a paradox that more capital does not flow from rich countries to poor countries. He rejected the standard explanation of expropriation risk and argued that paucity of capital flows to poor countries must instead be rooted in externalities in human capital formation favoring further investment in already capital rich countries. In this paper, we review the various explanations offered for this paradox.' There is no doubt that there are many reasons why capital does not flow from rich to poor nations yet the evidence we present suggests some explanations are more relevant than others. In particular, as long as the odds of non repayment are as high as 65 percent for some low income countries, credit risk seems like a far more compelling reason for the paucity of rich-poor capital flows. The true paradox may not be that too little capital flows from the wealthy to the poor nations, but that too much capital (especially debt) is channeled to debt intolerant serial defaulters.read more
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Journal ArticleDOI
Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation
TL;DR: This paper examined the empirical role of difierent explanations for the lack of flow of capital from rich to poor countries, including differences in fundamentals across countries and capital market imperfections, and showed that during 1970-2000 low institutional quality is the leading explanation.
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Foreign Capital and Economic Growth
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The Marginal Product of Capital
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TL;DR: The authors showed that the marginal product of capital (MPK) is remarkably similar across countries and there is no prima facie support for the view that international credit frictions play a major role in preventing capital flows from rich to poor countries.
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What drives international financial flows? Politics, institutions and other determinants
TL;DR: This paper used a large panel of financial flow data from banks to assess how institutions affect international lending and found that institutional improvements are followed by significant increases in international finance, suggesting that institutional underdeveloped can explain a significant part of Lucas [Lucas, Robert E. 1990] paradox of why doesn't capital flow from rich to poor countries.
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TL;DR: In this article, the authors examined the causes, consequences, and policy responses to surges in international capital flows and found that capital inflow bonanzas are associated with higher likelihood of economic crises (debt defaults, banking, inflation and currency crashes).
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