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The Capital-Paradox: the relationship of growth and capital flows
Avg GDP peer
capita growwth
Avg C/A-balance as % of GDP
Source: Prasad, Rajan, Subramanian (2007): „The Paradox of
Capital“, in: IMF, Finance and Development Magazine
30
Economic theory would tell us that
capital would flow „downhill“, from
rich i h countries t i tto poor countries, t i
because the marginal rate of
return on capital is higher in
poorer countries.
But paradoxically those countries
experienced the highest growth
rates, t that th t were exporting ti capital. it l