Federal Reserve Bank of Minneapolis
Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America
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.
Cite this item
Lee E. Ohanian & Paulina Restrepo-Echavarria & Mark L. J. Wright, Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America, Federal Reserve Bank of Minneapolis, Staff Report 563, 14 May 2018.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
Keywords: Capital flows; Labor markets; Domestic capital markets; International capital markets
This item with handle RePEc:fip:fedmsr:563
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