International capital flows to developing countries in the period 1970-2000. Discussions on a theoretical approach and its empirical non-verification

Abstract

Since the 1980s, international capital flows have been increasing significantly as a result of the opening of financial markets, especially those of developing countries. This liberalization was favored in the belief that this would help these countries to develop more rapidly because it was based on the conviction that the major problem of these countries, according to neoclassical theory, is a level of capital allocated to production that is too low to raise world competitive standards. Moreover, neoclassical theory states that where there is the greatest lack of capital it will have the highest returns; thus, investors from developed countries would invest their capital in these countries. But in reality it can be seen that this is not the case.
The neoclassical theory and its implications on international capital flows, according to which a large part of capital should flow from developed countries with low marginal returns on capital to developing countries with a higher marginal product of capital, are analyzed. The empirical evidence, which clearly contradicts the prevailing neoclassical theory, is analyzed. In the third section we looked for some possible explanations that would allow us to understand the reasons why this occurs. And in the conclusions we try to find the reasons that would explain such a set of observations.