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Capital inflows and economic growth: does the role of institutions matter?


Slesman, Ly and Baharumshah, Ahmad Zubaidi and Wohar, Mark E. (2015) Capital inflows and economic growth: does the role of institutions matter? International Journal of Finance and Economics, 20 (3). pp. 253-275. ISSN 1947-2757; ESSN: 1947-2765


Recent evidence shows that institutions figure prominently in explaining the ‘Lucas paradox’. Using a threshold regression model, we extend this evidence to a situation where institutions index the relationship between foreign capital inflows and economic growth. We find strong and robust evidence that portfolio equity (including foreign direct investment) and debt inflows have positive effects on growth only in countries with high‐quality institutions. Countries that fall below the threshold level of institutional quality record either insignificant or negative effects. This paper provides a possible explanation on the so‐called Lucas paradox.

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Additional Metadata

Item Type: Article
Divisions: Faculty of Economics and Management
DOI Number: https://doi.org/10.1002/ijfe.1514
Publisher: International Institute of Finance and Economics
Keywords: Capital inflows; Institutions; Economic growth; Threshold regression
Depositing User: Ms. Ainur Aqidah Hamzah
Date Deposited: 14 Mar 2022 04:42
Last Modified: 14 Mar 2022 04:42
Altmetrics: http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.1002/ijfe.1514
URI: http://psasir.upm.edu.my/id/eprint/43994
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