International Capital Flows and Economic Development: The Role of Financial Openness

Abstract: This paper uses the dataset from 89 developed and developing countries in the period 1995-2014 to analyze the movement of international capital flows, employing the neoclassical theory or Lucas paradox. By two-step system GMM estimation, it was found that (i) capital only flows from poor countries to rich ones which are willingly to open to financial integration. In other words, Lucas paradox is confirmed in the following situations: (ii) the more economic development is promoted, the more Vietnam and ASEAN countries attract capital inflows; (iii) demographic and macroeconomics variables significantly affect capital inflows.