ABSTRACT
In this chapter, we empirically understand whether institutional quality matters in how capital flows affect economic growth. To do this, we using a selected sample of 28 EMDEs from both Asian and Latin American regions for the period 1990–2013. Our empirical analysis shows that the marginal effect of capital flows on economic growth is positive and contingent on the threshold level of institutional quality. The conditional effect of capital flows holds for both growth in GDP per capita and total factor productivity (TFP). Further, by way of offering a comparative perspective, we find that the overall level of institutional quality is higher in the Asian countries compared to the Latin American counterparts and requires a lower threshold level to exert any positive effect on GDP per capita growth. While the same conditional effect holds in Latin America for TFP growth, this effect reverses in Asia. The marginal effects also seem to vary based on the composition of capital flows in each region.
