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IMF surveillance as a signal to attract foreign investment

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  • Mayer, Wolfgang
  • Mourmouras, Alexandros
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    Abstract

    Poor governance and endemic corruption hamper the efforts of some developing countries to attract foreign investment. Incentive schemes based on verifiable signals of varying costs and quality can be helpful in encouraging their governments to intensify corruption-control efforts. This paper ranks alternative signals, including surveillance by the IMF and other IFIs (International Financial Institutions), as catalysts for private foreign investments. We demonstrate that the ranking crucially depends on the bargaining strength of governments relative to foreign investors. If foreign lenders control the bargain, IFI signals are the first choice. If governments are in control, IFI signals become the choice of last resort.

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    File URL: http://www.sciencedirect.com/science/article/B6W4V-4XR5N9Y-1/2/85a2ddd717b7f0638ffe33e9c524236c
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 19 (2010)
    Issue (Month): 4 (October)
    Pages: 562-574

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    Handle: RePEc:eee:reveco:v:19:y:2010:i:4:p:562-574

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: IMF surveillance Signals Foreign investment Corruption control;

    References

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    1. Graham Bird & Dane Rowlands, 2002. "Do IMF Programmes Have a Catalytic Effect on Other International Capital Flows?," Oxford Development Studies, Taylor & Francis Journals, vol. 30(3), pages 229-249.
    2. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
    3. Holger Görg & Hassan Molana & Catia Montagna, 2007. "Foreign Direct Investment, Tax Competition and Social Expenditure," Dundee Discussion Papers in Economics 198, Economic Studies, University of Dundee.
    4. Yip, Paul S.L. & Yao, S.T., 2006. "Removing foreign direct investment's exchange rate risk in developing economies: the case for a foreign exchange custodian board," International Review of Economics & Finance, Elsevier, vol. 15(3), pages 294-315.
    5. Chakrabarti, Avik, 2003. "A theory of the spatial distribution of foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 12(2), pages 149-169.
    6. Mutti, John & Grubert, Harry, 2004. "Empirical asymmetries in foreign direct investment and taxation," Journal of International Economics, Elsevier, vol. 62(2), pages 337-358, March.
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    Cited by:
    1. Kym Anderson & Gordon Rausser & Johan Swinnen, 2013. "Political Economy of Public Policies: Insights from Distortions to Agricultural and Food Markets," Journal of Economic Literature, American Economic Association, vol. 51(2), pages 423-77, June.

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