Country Portfolios

Abstract

Capital flows to developing countries are small and take mostly the form of loans rather than direct foreign investment. We build a simple model of North-South capital flows that highlights the interplay between diminishing returns, production risk and sovereign risk. This model generates a set of country portfolios and a world distribution of capital stocks that resemble those in the data.Economic Theory&Research,Banks&Banking Reform,Payment Systems&Infrastructure,International Terrorism&Counterterrorism,Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,International Terrorism&Counterterrorism,Environmental Economics&Policies,Financial Intermediation