Capital nationality and long-run economic development

Abstract This article reviews different literature strands and performs empirical tests to identify new stylized facts on how capital ownership, particularly its nationality, relates to long-run economic development. The results indicate that low- and middle-income countries with larger foreign capital stock in 1980 had lower economic growth over the next four decades. The estimations also suggest that these economies developed a less specialized export basket, which became relatively more concentrated in low-tech goods. The results are inverted to high-income economies, for which the relationship is positive for GDP growth and export specialization and complexity. These stylized facts are in line with (and can be interpreted as a test to) the hypothesis proposed by Alice Amsden’s seminal book ‘The Rise of the Rest’ (2001) to explain different growth trajectories among developing countries. The results can also be interpreted in light of theoretical and empirical evidence that foreign capital might reinforce static comparative advantages in developing economies, particularly in middle-income ones.