The Paradox of Rich-to-Poor Capital Flow

According to Solow's growth model, all countries finally converge to long-term stability. Given the usual assumption that countries producing the same goods have the same scale of production technology gains using (equally) capital and labor as production factors, the difference in per capita income is one It will reflect differences in per capita capital. So basically, if capital is allowed to flow freely, new investment should be made only to the poorer economies.

Imagine that mainstream economics can not make up for it when you obey discipline. The standard story of economics is that capital should flow from a rich country to a poor country. The idea is that the profitability is low because rich countries are rich in capital. Poor countries are scarce, so they earn high revenues. In this story, wealthy countries provide the poor countries with the necessary capital for development. This is equivalent to a large trade surplus between rich and developing countries. In fact, wealthy countries ensure that populations are supplied, arranged, and dressed, while poor countries provide the necessary funds to build capital and infrastructure.

Because the capital is pursuing rich natural resources, young people and human capital are plentiful. Therefore, the capital flow is a reaction machine. They are expelled to wealthy countries rather than poor countries, wages and labor productivity improve in new worlds rich in resources, and withdrawal from Europe outside of Scandinavia, wages and labor productivity in regions with poor resources worldwide . Among the major players of the economy of the 19th century, globalization has an offset effect. In rich and land rich new world countries more trade and more immigrants will increase inequality. Even countries in the third world where poor primary products are being exported do the same thing. In some countries, such as poverty, lack of land, and participation in the old world, inequality has been reduced by expanding trade and increasing immigration. For income disparities between countries, immigrants have a balanced effect, which is offset by the fact that capital flows into wealthy new world countries.

The capital market was at least as global as today's integration before the First World War, but the capital flow is primarily anti-convergence. Of course, this apparently counterintuitive argument contradicts the simple theory that predicting capital should flow from a rich country (probably capital rich) to a poor country (perhaps capital shortage). It's not. Clemens and Williamson (2000), as reported by Lucas (1990) in the second half of the 20th century, found that capital inflow and per capita GDP had a positive correlation between 1870 and 1913. The so-called Lucas paradox existed a century ago and it was explained