We study empirically and theoretically the effects of international capital flows on resource allocation. Using the universe of firms in Hungary, we show that financial openness triggers input-cost and consumption channels, with the latter dominant and reallocating resources toward high...

We empirically and theoretically study the effects of capital flows on resource allocation within sectors and cross-sectors. Novel data on service firms - in addition to manufacturing firms - allows us to assess two channels of resource reallocation. Capital inflows lower the relative price of...