Not all capital waves are alike : a sector - level examination of surges in FDI inflows

This paper revisits the Lucas paradox by quantifying empirically the relevance of a specific set of policies — restrictions on international capital flows — in shaping the patterns of capital movements at various stages of economic development. The determinants of the direction of capital flows, and their relation to economic development, constitute an important topic in open economy macroeconomics. The study is particularly relevant at the present time, since the size and direction of capital flows have been central to the recent debate on global imbalances and will remain relevant in the aftermath of the global financial crisis. Indeed, it remains unclear, empirically, whether (and which) policies can result in capital flowing ‘uphill’.