International Conference on Eurasian Economies
1-3 July 2014 – Skopje, MACEDONIA
Paper detail
Paper ID : 937
Status : Paper published
Language : Turkish
Topic : Finance and Financial Crises
Presenter: Prof. Dr. Harun Bal
Session : 6D Makroekonomi I
Why do Developing Countries Fail to Attract Global Capital? Reinvestigation of the Lucas Paradox for the Balkan Countries
Gelişmekte Olan Ülkeler Küresel Sermayeyi Çekme Konusunda Niçin Başarısız Olmaktadırlar? Balkan Ülkeleri için Lucas Paradoksunun Yeniden İncelenmesi
- Prof. Dr. Harun Bal (Çukurova University, Türkiye)
- Prof. Dr. Neşe Algan (Çukurova University, Türkiye)
- Asst. Prof. Dr. Mehmet Demiral (Ömer Halisdemir University, Türkiye)
Abstract
The neoclassical theory predicts that capital should flow from developed (rich) to developing (poor) countries until the differences of investment returns are equalized. However, in his famous example, Lucas (1990) pointed out that, even the marginal product of capital in India was roughly calculated as 58 times that of the United States in 1988, such a capital flow did not occur in practice. This observation somewhat still exists in general. This study tries to find out some possible explanations to why Lucas Paradox is still seen in such an increasingly integrated world and demonstrate what foreign direct investments (FDIs) really pursue, focusing on selected nine Balkan countries. The study performs gravity model estimation using annual balanced panel data sets covering the period of 2000-2012. Overall results demonstrate that there is some evidence supporting Lucas paradox for the Balkan countries investigated. Main findings show that, regulations, country risk and China’s increasing attraction of global FDI tend to hinder Balkan countries’ performances, while improvements in human capital, infrastructures and logistic services can help these countries increase their global shares in FDI. Besides, increases in the research and development investments and progress in the path of the European Union membership processes seem to promote attracting global FDI.
JEL codes: C33, E02, F21
Bal, Harun, Algan, Neşe, Demiral, Mehmet (2014). "Why do Developing Countries Fail to Attract Global Capital? Reinvestigation of the Lucas Paradox for the Balkan Countries" in Proceedings of International Conference of Eurasian Economies 2014, pp.909-918, Skopje, MACEDONIA.
DOI: https://doi.org/10.36880/C05.00937
