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

Abstract

The research studies on whether foreign capital movements adheres to the neoclassical theory or Lucas paradox by using data of 89 developed and developing countries during the period 1995-2014. By approaching the two-step system GMM estimator, the study pertains following results: (i) capital flows shift from poor nations to rich nations with the presence of financial integration, which is consistent to the Lucas paradox; (ii) thanks to fast economic development, Vietnam and other ASEAN countries attract more international capital than the others in the research sample; (iii) demographic and macro-economic factors influence significantly on attracting international investment.