CAPITAL FLOWS TO DEVELOPING COUNTRIES AND TERMS-OF-TRADE SHOCKS

Rosario

Congreso; Reunión Anual; 2013

AAEP

This paper studies the relationship between FDI in ows and terms-of-trade shocks. We examine the existing literature related to the Lucas Paradox", and analyze theoretically how a terms-of-trade shock would impact on less developed economies. We apply a xed eects generalized least square regression framework to regress FDI in ows on terms-of-trade shock alongside other control variables. We nd that for the group of developing" economies the estimated coecient of shocks to TOT are lower than that estimated for the group of advanced" economies. Then, less developed economies do not take advantage of positive global cycles because they are investment-constrained economies.