Foreign Direct Investment, Other Capital Flows, and Current Account Deficits: What Causes What?

Abstract

No AccessPolicy Research Working Papers25 Jun 2013Foreign Direct Investment, Other Capital Flows, and Current Account Deficits: What Causes What?Authors/Editors: Maxwell J. Fry, Peter Burridge, Marie-Christine BlanchetMaxwell J. Fry, Peter Burridge, Marie-Christine Blanchethttps://doi.org/10.1596/1813-9450-1527SectionsAboutPDF (1.8 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:October 1995 The more liberal a country's foreign exchange system, the more foreign direct investment is likely to be independent of current account and other capital flows. Fry, Claessens, Burridge, and Blanchet examine flows of foreign direct investment to 46 developing countriesto test whether such flows are autonomous or accommodating vis-á-vis the current account and other capital flows. Using Granger-causality tests, they find that: ° Requirements to surrender export proceeds to the monetary authorities and the existence of special exchange rates for some capital account transactions reduce the probability that foreign direct investment is independent. ° The more liberal a country's foreign exchange system, the more foreign direct investment is likely to be independent or exogenous. ° Foreign direct investment is associated with a larger increase in capital formation when it is independent than when it is Granger-caused by other capital flows. This paper --- a product of the Debt and International Finance Division, International Economics Department --- is part of a larger effort in the department to study the determinants and impact of foreign direct investment. The study was funded by the Bank's Research Support Budget under the research project Foreign Direct Investment in a Macroeconomic Framework (RPO 678-15). Previous bookNext book FiguresReferencesRecommendedDetailsCited ByPolitical association, managerial power heterogeneity, and corporate risk-taking in ChinaEconomic Research-Ekonomska Istraživanja, Vol.32, No.114 July 2019Origin of FDI and Domestic Productivity Spillovers: Does European FDI Have a Productivity Advantagee in the ENP Countries?SSRN Electronic JournalThe Relationship between Capital Flows and Current Account: Volatility and CausalitySSRN Electronic Journal View Published: November 1999 Copyright & Permissions Related RegionsAfricaLatin America & CaribbeanRelated CountriesIndonesiaNigeriaSingaporeBrazilPanamaRelated TopicsMacroeconomics and Economic GrowthInternational Economics & TradePrivate Sector DevelopmentFinance and Financial Sector Development KeywordsBUDGETCAPITAL FLOWSCAPITAL FORMATIONCAPITAL INFLOWSCDCURRENT ACCOUNT DEFICITSDEBTDEFICITSDEVELOPING COUNTRIESFOREIGN CAPITALFOREIGN DIRECT INVESTMENTFOREIGN EXCHANGEINFLATIONINFLATION RATESINTERNATIONAL ECONOMICSINTERNATIONAL FINANCEINTERNATIONAL FINANCIAL STATISTICSREAL INTERESTREAL INTEREST RATETRANSACTIONS PDF DownloadLoading ...

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