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A new approach to capital flows: Theory and evidence
Xinhua Gu; Bihong Huang

This paper examines how an open economy determines itsfinancial openness and deals with volatile capitalflows when deciding to utilize them for output growth. Wefind that higher economic instability is aninevitable price paid for faster growth if a country permits wider openness without reversing itsfinancialvulnerability. We prove that the country can leave its capital market wider open to achieve higher growth andlower instability if itsfinancial system has been strengthened substantially. We show why somefinanciallyadvanced countries request reluctant developing countries to liberalize their immature markets and how theconflict of interest between the two parties is formulated. The paper also presents a large sample of cross-country experiences with tradeoffs between growth and instability, with the observed evidence supportingour theoretical predictions.

KeywordCapital Flows Financial Weakness Financial Openness Growth Instability
Indexed BySSCI
WOS Research AreaBusiness & Economics
WOS SubjectEconomics
WOS IDWOS:000290005600032
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Cited Times [WOS]:2   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionFaculty of Business Administration
Corresponding AuthorBihong Huang
AffiliationFaculty of Business Administration, University of Macau, China
First Author AffilicationFaculty of Business Administration
Corresponding Author AffilicationFaculty of Business Administration
Recommended Citation
GB/T 7714
Xinhua Gu,Bihong Huang. A new approach to capital flows: Theory and evidence[J]. ECONOMIC MODELLING,2011,28(3):1050-1057.
APA Xinhua Gu,&Bihong Huang.(2011).A new approach to capital flows: Theory and evidence.ECONOMIC MODELLING,28(3),1050-1057.
MLA Xinhua Gu,et al."A new approach to capital flows: Theory and evidence".ECONOMIC MODELLING 28.3(2011):1050-1057.
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