Capital account flows, consumption ratios and the middle‐income trap

The existing literature suggests that it is important to understand the factors that may slow the transition of an economy from middle to high income. Many factors have been suggested as promoting or retarding economic growth, but little attention has been paid to the roles of the capital account an...

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Bibliographic Details
Published inReview of development economics Vol. 23; no. 3; pp. 1459 - 1476
Main Authors Zhao, Daping, Anwar, Sajid, Alexander, W. Robert J.
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.08.2019
Subjects
Capital
capital account flows
Consumption
consumption ratio
Economic growth
Foreign investment
growth slow‐down
middle‐income trap
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Summary:The existing literature suggests that it is important to understand the factors that may slow the transition of an economy from middle to high income. Many factors have been suggested as promoting or retarding economic growth, but little attention has been paid to the roles of the capital account and consumption ratio. Using panel regressions involving 48 countries over the 1950–2013 period as well as employing extreme bounds analysis, we find that foreign investment outflows are associated with a mature economy and that there is an optimal consumption ratio that must be surpassed to break out of middle‐income status. These findings are robust to an extreme bounds analysis incorporating a wide range of variables potentially related to growth performance.
Bibliography:Funding information
Research on the Risks and Experiment of RMB Capital Account Liberalization in Shanghai FTA
(No.14BJY178).
This study is supported by the China National Social Science Fund
ISSN:1363-6669
1467-9361
DOI:10.1111/rode.12597