NET VERSUS GROSS CAPITAL FLOWS IN THE LUCAS PARADOX

The aim of this paper is to elaborate the need of analyzing gross capital flows instead of net capital flows in time of globalization, financial liberalization and crisis and by doing that explaning all the differences in conclusions of existance of Lucas paradox. Paper is first defining differences between net capital flows and gross capital flows. The second part of the paper is giving an overview of studies compared to the data used in the research. Conclusions of those researches are than compared considering the type of capital flows – gross or net, assuming that net capital flows are showing different effects on Lucas paradox than gross capital flows. As a conclusion paper gives three statements. First is setting net capital flows as a relatively stable variable regardless the shocks on the markets. Second one is describing gross capital flows as larger and more volatile to changes than net capital flows. The third conclusion of the paper is positioning all the gross capital flows, capital inflows and capital outflows, as a procyclical variables. Understanding the capital flows and Lucas paradox in the economy of modern sociaty is directly answering the question of convergence of countries in the long term and thereby questioning existing neoclassical growth theories and shifting them into a new, globalization era of liberalization and crisis.