Fed paper measures damage from capital flow surges
Surges lead to boom and bust as well as reallocation of labour
A working paper published by the Federal Reserve sheds new light on the damage caused by surging capital flows into and then rapidly out of an economy.
In Large capital inflows, sectoral allocation and economic performance, Gianluca Benigno, Nathan Converse and Luca Fornaro study 155 episodes of capital surges in 70 middle- and high-income countries.
They find both the share of investment and labour devoted to manufacturing falls following a large inflow, with the allocation shifting towards non
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