Capital flows and economic growth in the era of financial integration and crisis, 1990-2010

We investigate the relationship between economic growth and lagged internationalcapital flows, disaggregated into FDI, portfolio investment, equity investment, and shorttermdebt. We follow about 100 countries during 1990-2010 when emerging marketsbecame more integrated into the international financial system. We look at therelationship both before and after the global crisis. Our study reveals a complex andmixed picture. The relationship between growth and lagged capital flows depends on thetype of flows, economic structure, and global growth patterns. We find a large and robustrelationship between FDI – both inflows and outflows – and growth. The relationshipbetween growth and equity flows is smaller and less stable. Finally, the relationshipbetween growth and short-term debt is nil before the crisis, and negative during the crisis