American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America
American Economic Review
vol. 108,
no. 12, December 2018
(pp. 3541–82)
(Complimentary)
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.Citation
Ohanian, Lee E., Paulina Restrepo-Echavarria, and Mark L. J. Wright. 2018. "Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America." American Economic Review, 108 (12): 3541–82. DOI: 10.1257/aer.20151510Additional Materials
JEL Classification
- E22 Investment; Capital; Intangible Capital; Capacity
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- F21 International Investment; Long-term Capital Movements
- F32 Current Account Adjustment; Short-term Capital Movements
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O47 Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence