Country portfolios

Kraay, Aart; Loayza, Norman; Servén, Luis; Ventura, Jaume

Country portfolios

License

Citation

Journal of the European Economic Association, 3 (4), 914-945, 2005

Abstract

Capital flows to developing countries are small and are mostly take 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.