Empirical Examination of Foreign Capital Flows and Growth Nexus in Emerging Economies

Abstract

The purpose of this paper is to analyse the effect of foreign capital flows on economic performance in three ways. First, it analyzes empirically the direct effect of capital account liberalisation on growth; second, it continues to explore the subject by testing one of the indirect effects of capital flows on economic welfare, namely their influence on competitiveness; and finally, it breaks down the issue further by decomposing capital flows into their specific elements – FDI, portfolio investments, aid, debt, remittances and tests their effect on competitiveness.