We describe the patterns of international capital flows in the period 1970–2000. We then examine the determinants of capital flows and capital flows volatility during this period. We find that institutional quality is an important determinant of capital flows. Historical determinants of institutional quality have a direct effect on today's foreign investment. Policy plays a significant role in explaining the increase in the level of capital flows over time and their volatility.

Working Paper 11696, National Bureau of Economic Research, October 2005.