We explore the role of financial development to explain the negative correlation between capital inflows and productivity catch-up. Evidence shows that countries with higher productivity growth rates export capital while countries with lower productivity growth rates receive positive capital...

Late 19th century investors demanded compensation to invest in countries with poor institutional protection of property rights. Using the monthly stock returns of 1,808 firms located in 43 countries but traded in London between 1866 and 1907, we estimate the country-specific cost of capital. We...