Lecture 7: Capital resources - Savings investment and FDI

Question 1

Gourinchas and Jeanne (2013)

Answer 1

This paper investigates the distribution of capital flows to developing countries, which contradicts traditional neoclassical growth models. Theory suggests that countries with higher productivity growth should have higher capital inflow, but this is not the case in reality. This is the allocation puzzle. This puzzle is solved by using an investment/captial wedge and savings wedge. The result is that the allocation puzzle is a savings puzzle.