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Foreign investment and perceptions of vulnerability to foreign exchange crises: evidence from transition economies

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  • Josef C. Brada
  • Vladimír Tomšík

Abstract

The article discusses different causes of financial crises and shows that the imputation of reinvested profits of the subsidiaries of foreign firms as a debit item on a host country's balance of payments account tends to overstate the current account deficit and to make the host country seem more vulnerable to financial crisis. It also shows that, because of the workings of the foreign direct investment financial life cycle, this phenomenon is most evident for countries that have recently received large inflows of capital. The transition economies of East Europe certainly fall among such countries. Authors verify the working of the foreign direct investment financial life cycle using a panel of transition economies.

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Bibliographic Info

Article provided by University of Economics, Prague in its journal Politická ekonomie.

Volume (Year): 2004 (2004)
Issue (Month): 3 ()
Pages: 313-329

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Handle: RePEc:prg:jnlpol:v:2004:y:2004:i:3:id:462:p:313-329

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Related research

Keywords: financial crisis; foreign direct investment; balance of payments; transition economies;

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Cited by:
  1. Rajmund MIRDALA, 2010. "Monetary Aspects Of Short-Term Capital Inflows In The Central European Countries," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(4(14)/ Wi), pages 342-358.
  2. Rajmund Mirdala, 2008. "Decomposition of External Capital Inflows and Outflows in the Small Open Transition Economy (The Case Analysis of the Slovak Republic)," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(2), pages 219-231, June.

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