An empirical analysis on economic growth and international capital flows

This study investigates the relationship between international capital flows and economic growth in a linear and non-linear context, with a sample of 40 developed and developing countries within the 1980-2018 period, based on an endogenous growth model which is defined by a Cobb-Douglas type production function with constant return to all accumulated capital inputs, and in which each inputs also depend on diminishing productivity, as a theoretical framework. For his purpose, within the framework of three empirical models developed on the basis of the growth equation optained as a result of the solution of an optimal control problem, whether the changes in the rates of net capital inflows of the forms of international capital flows, consisting of direct investment, portfolio investment, and other investment, affect the growth rates of GDP per person employed linearly and non-linearly, and whether these effects exhibit an asymmetric character or not during the contraction and expansion periods of the economies in the sample, in the short run and long run, is investigated by ARDL and NARDL, repectively. The findings show that changes in the rates of net capital inflows of international capital flows such as direct investment, portfolio investment and other investment do not significantly affect the GDP per person employed growth rate linearly and non-linearly, and there is little evidence about systematically symmetric and asymmetric effects in developed and developing countries. These results may be related to the structural characteristics, financial liberalization strategies, financial development environments and institutional development levels of the countries in the sample.