Why Capital Flows Uphill
One would expect fast growing, capital-scarce (and young) developing countries to be importing capital from the rest of world to finance consumption and investment. So, why are they sending capital to richer countries, instead?
LONDON – At first, it seems difficult to grasp: global capital is flowing from poor to rich countries. Emerging-market countries run current-account surpluses, while advanced economies have deficits. One would expect fast-growing, capital-scarce (and young) developing countries to be importing capital from the rest of world to finance consumption and investment. So, why are they sending capital to richer countries, instead?
LONDON – At first, it seems difficult to grasp: global capital is flowing from poor to rich countries. Emerging-market countries run current-account surpluses, while advanced economies have deficits. One would expect fast-growing, capital-scarce (and young) developing countries to be importing capital from the rest of world to finance consumption and investment. So, why are they sending capital to richer countries, instead?