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Not all capital waves are alike: a sector-level examination of surges in FDI inflows

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  • Reinhardt, Dennis

    ()
    (Bank of England)

  • Dell'Erba, Salvatore

    ()
    (Graduate Institute of International and Development Studies, Geneva)

Abstract

We examine episodes of large gross foreign direct investment (FDI) inflows - surges - at the sectoral level in emerging market economies. We find that surges in the financial sector, unlike surges in the non-financial sectors, are associated with boom-bust cycles in GDP and expansions of credit in foreign currency. In terms of the determinants of surges, we find that global and contagion factors have a stronger effect in the financial than the non-financial sectors. We also document a role for policies related to capital account openness: restrictions on other forms of capital inflows tend to increase the likelihood of surges in financial sector FDI.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 474.

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Length: 41 pages
Date of creation: 14 Jun 2013
Date of revision:
Handle: RePEc:boe:boeewp:0474

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Keywords: Foreign direct investment; surges; capital flow determinants; sectoral level; emerging market economies;

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  1. Reuven Glick & Andrew K. Rose, 1998. "Contagion and trade: why are currency crises regional?," Pacific Basin Working Paper Series 98-03, Federal Reserve Bank of San Francisco.
  2. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
  3. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
  4. Barry Eichengreen & Muge Adalet, 2005. "Current Account Reversals: Always a Problem?," NBER Working Papers 11634, National Bureau of Economic Research, Inc.
  5. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
  6. Nicolas E. Magud E. & Carmen M. & Kenneth S. Rogoff, 2011. "Capital Controls: Myth and Reality--A Portfolio Balance Approach," Working Paper Series WP11-7, Peterson Institute for International Economics.
  7. Michael B. Devereux & James Yetman, 2010. "Leverage Constraints and the International Transmission of Shocks," NBER Working Papers 16226, National Bureau of Economic Research, Inc.
  8. Carmen Reinhart & Vincent Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Chapters, in: NBER International Seminar on Macroeconomics 2008, pages 9-62 National Bureau of Economic Research, Inc.
  9. Daude, Christian & Fratzscher, Marcel, 2006. "The pecking order of cross-border investment," Working Paper Series 0590, European Central Bank.
  10. International Monetary Fund, 2004. "When in Peril, Retrench: Testing the Portfolio Channel of Contagion," IMF Working Papers 04/131, International Monetary Fund.
  11. Jonathan David Ostry & Mahvash Saeed Qureshi & Karl Friedrich Habermeier & Dennis B. S. Reinhardt & Marcos Chamon & Atish R. Ghosh, 2010. "Capital Inflows: The Role of Controls," IMF Staff Position Notes 2010/04, International Monetary Fund.
  12. Salvatore Dell’Erba & Dennis Reinhardt, 2011. "Surfing the Capital Waves: A sector-level examination of surges in FDI inflows," Working Papers 11.07, Swiss National Bank, Study Center Gerzensee.
  13. Albuquerque, Rui & Loayza, Norman & Serven, Luis, 2003. "World market integration through the lens of foreign direct investors," Policy Research Working Paper Series 3060, The World Bank.
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