Effect of long-term policies, institutions, political risk and information flows on capital flows

This paper analyzes the empirical role of different types of long-term policies, institutional quality and political risk factors' impact on cross-country capital flows. Our findings suggest that the long-term institutional quality of countries explains the variation in capital flows across countries. Even though the long-term institutional quality factors are important to attract higher capital flows, none of these proxies explain the Lucas paradox (i.e., why poor countries receive relatively low levels of capital flows).