Hostname: page-component-586b7cd67f-t8hqh Total loading time: 0 Render date: 2024-11-24T00:34:00.807Z Has data issue: false hasContentIssue false
  • English
  • Français

Does institutional quality affect capital mobility? Evidence from developing countries

Published online by Cambridge University Press:  01 August 2009

JAVED YOUNAS
JAVED YOUNAS*
Affiliation:
Central Michigan University, Mount Pleasant, USA
*
*Email: youna1j@cmich.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper uses an augmented Feldstein–Horioka savings–investment methodology to examine the impact of institutional quality on the degree of capital mobility in developing countries. A high correlation between domestic investment and domestic savings can arise from the presence of institutional rigidities restricting the movement of capital across borders. We find that including different aspects of institutional quality raises the coefficient of the savings rate, implying lower capital mobility. However, the improvement in institutional quality that strengthens the legal system, reduces investment risks, and ensures democratic accountability, increases capital mobility in developing countries. Inclusion of foreign aid also has a positive impact on the coefficient of the savings rate.

Type
Research Article
Information
Journal of Institutional Economics , Volume 5 , Issue 2 , August 2009 , pp. 207 - 223
Copyright
Copyright © The JOIE Foundation 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bayoumi, T. A. (1990), ‘Savings–Investment Correlations: Immobile Capital, Government Policy or Endogenous Behavior’, IMF Staff Paper, 37: 360–387.CrossRefGoogle Scholar
Burnside, C. and Dollar, D. (2000), ‘Aid, policies and Growth’, American Economic Review, 90: 847–868.CrossRefGoogle Scholar
Coakley, J., Kulasi, F., and Smith, R. (1999), ‘Saving, Investment, and Capital Mobility in LDCs’, Review of International Economics, 7: 632–640.CrossRefGoogle Scholar
Collier, P. and Gunning, J. W. (1999), ‘Explaining African Economic Performance’, Journal of Economic Literature, 37 (1): 64–111.CrossRefGoogle Scholar
Dooley, M., Frankel, J., and Mathieson, D. J. (1987), ‘International Capital Mobility: What Do Saving–Investment Correlation Tell Us?’, IMF Staff Papers, 34: 503–530.CrossRefGoogle Scholar
Feldstein, M. and Horioka, C. (1980), ‘Domestic Savings and International Capital Flows’, Economic Journal, 90: 314–329.CrossRefGoogle Scholar
Freedom House (2005), Freedom in the World, New York: Freedom House. International Country Risk Guide (ICRG) (2005), The Political Risk Service Group, New York.Google Scholar
Isaksson, A. (2001), ‘Financial Liberalization, Foreign Aid, and Capital Mobility: Evidence from 90 Developing Countries’, Journal of International Financial Markets, Institutions and Money, 11: 309–338.CrossRefGoogle Scholar
Johnson, S., McMillan, J., and Woodruff, C. (2002). ‘Property Rights and Finance’, American Economic Review, 92: 1335–1356.CrossRefGoogle Scholar
Kasuga, H. (2004), ‘Saving–Investment Correlation in Developing Countries’, Economics Letters, 83: 371–376.CrossRefGoogle Scholar
Mamingi, N. (1997), ‘Savings–Investment Correlations and Capital Mobility: The Experience of Developing Countries’, Journal of Policy Modeling, 19: 605–626.CrossRefGoogle Scholar
Montiel, P. J. (1994), ‘Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates’, World Bank Economic Review, 8: 311–353.CrossRefGoogle Scholar
North, D. C. (1991), ‘Institutions’, Journal of Economics Perspective, 5: 97–112.CrossRefGoogle Scholar
Obstfeld, M. and Rogoff, K. (2000), ‘Perspective on OECD Economic Integration: Implications for U.S. Current Account Adjustment’, Mimeo, Harvard University.Google Scholar
Payne, J. E. and Kumazawa, R. (2005), ‘Capital Mobility, Foreign Aid, and Openness: Further Panel Data Evidence from Sub-Saharan Africa’, Journal of Economics and Finance, 29: 123–127.CrossRefGoogle Scholar
Prasad, E., Rajan, R., and Subramanian, A. (2006), ‘Patterns of International Capital Flows and Their Implications for Economic Development’, IMF Research Department.Google Scholar
Rodrik, D., Subramanian, A., and Trebbi, F. (2004), ‘Institutions Rule: The Primacy of Institutions over Geography and Integration in Economics Development’, Journal of Economic Growth, 9: 131–165.CrossRefGoogle Scholar
Sinha, T. and Sinha, D. (2004), ‘The Mother of All Puzzles Would Not Go Away’, Economics Letters, 82: 259–267.CrossRefGoogle Scholar
Vamvakidis, A. and Wacziarg, R. (1998), ‘Developing Countries and the Feldstein – Horioka Puzzle’, IMF Working Paper, 2: 1–24.Google Scholar
Wall, H. J. (1995), ‘The Allocation of Official Development Assistance’, Journal of Policy Modeling, 17: 307–314.CrossRefGoogle Scholar
Wong, D. Y. (1990), ‘What Do Savings–Investment Relationship Tell Us about Capital Mobility?’, Journal of International Money and Finance, 9: 60–74.CrossRefGoogle Scholar
Wooldridge, J. M. (2003), Introductory Econometrics, South-Western Publishers.Google Scholar
World Development Indicators (WDI) (2004), CD Rom, World Bank, Washington, DC.Google Scholar
Younas, J. (2007), ‘Capital Mobility, Foreign Aid, and Openness: A Reappraisal’, Economics Bulletin, 6 (12): 1–8.Google Scholar