An Empirical Analysis Of International Capital Flows

According to the Neo-classical model, capital will flow to capital-scarced countries due to their relatively high rate of return. However, as was pointed out by Lucas in 1990, the truth is that capital flew from poor countries to rich ones, so called"Lucas Paradox".Based on mathematically statistical methods and econometrics, this paper offers empirical analysis for Lucas Paradox and the phenomenon of international disequilibrium. First, an empirical investigation about the Marginal Product of Capital, MPK across countries is provided. We separate natural capital from total capital and focus mainly on the return to reproducible physical capital. Besides, we take the relative price between consumption goods and capital goods into consideration. These two modifications to the MPK show that there aren't significant differences among MPK across countries.Second, based on the new comparative advantage theory that advanced countries focus on producing financial goods while developing countries focus on manufacturing goods, we adopted empirical examinations. Our comparative advantage indicator proves the validation of this theory.Finally, the disequilibrium phenomenon between China and the United States is given much concern. The returns of capital in each section of these two countries have been compared, and the conclusion is that the overall return in U.S. is higher than that in China, which explains China's net export of capital to the U.S. nowadays. Besides, the contributing factors of international capital flows to China have been studied, and we find that it is MPKs rather than exchange rate that affect international capital flows, so that the disequilibrium existed between the two countries cannot be solved by the acceleration of RMB.Our study offers significant implications for governments and the understanding of so called Global Imbalance.