Abstract
This thesis uses quarterly data over the 1980-2011 to investigate the impact of capital flows on economic growth and domestic investment and also to assess whether these results differ from economies-distinguishing samples which includes 19 emerging countries, 13 developing countries, and 22 developed countries. Using interaction terms to assess whether this relationship depends on the level of economic development, human capital, and macroeconomic policies, this study uses OLS estimator and also use a 2-stage least squares instrumental variable estimator to control for simultaneity bias while allowing for heteroskedasticity-consistent errors. The results suggest capital flows exert a positive influence on economic growth and boost domestic investment in emerging countries. However, it’s not significant in the sample of developed countries.