Capital flows to developing countries are small and take mostly the form of loans rather than direct foreign investment. We build a simple model of North-South capital flows that highlights the interplay between diminishing returns, production risk and sovereign risk. This model generates a set...

The authors reexamine a classic question in international economics: What is the current account response to a transitory income shock such as a temporary improvement in the terms of trade, a transfer from abroad, or unusually high production? To answer this question, they construct a world...

Drawing on evidence from a large sample of speculative attacks in industrial and developing countries, the author argues that high interest rates do not defend currencies against speculative attacks. In fact, there is a striking lack of any systematic association between interest rates and the...

The evidence from individual cases and from cross-country analysis supports the view that globalization leads to faster growth and poverty reduction in poor countries. To determine the effect of globalization on growth, poverty, and inequality, the authors first identify a group of developing...

This paper examines the determinants of"debt distress,"which they define as periods in which countries resort to exceptional finance in any of three forms: (1) significant arrears on external debt, (2) Paris Club rescheduling, and (3) nonconcessional International Monetary Fund lending. Using...

Several recent papers have attempted to identify the partial effects of trade integration and institutional quality on long-run growth using the geographical determinants of trade and the historical determinants of institutions as instruments. The authors show that many of the specifications in...

This paper estimates the effect of government investment on private investment in a sample of 39 low-income countries. Fluctuations in a predetermined component of disbursements on loans from official creditors to developing country governments are used as an instrument for fluctuations in...

Business cycles are less volatile in rich countries than in poor ones. They are also more synchronized with the world cycle. The authors develop two alternative but noncompeting explanations for those facts. Both explanations proceed from the observation that the law of comparative advantage...

A look at the data reveals that in OECD countries, economic fluctuations exhibit a high degree of synchronization. In 1965-90, cross-country contemporaneous GDP growth correlations averaged 45 percent. This suggests that a central element of any theory of economic fluctuations should be an...

This paper reviews the empirical evidence on the existence of poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor. Poverty traps have captured the interest of many development policy makers, because poverty traps provide a...