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Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe

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  • Yuko Kinoshita
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    Abstract

    In the run up to the global crisis, countries in Central Eastern and Southeastern Europe attracted large capital inflows and some of them built up large external imbalances. This paper investigates whether these imbalances are linked to the sectoral composition of FDI. It shows that FDI in the tradable sectors leads to an improvement of the external balance. We also find that the countries with large market size, good infrastructure, greater trade integration, and educated labor force are more likely to receive more FDI in the tradable sectors.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/123.

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    Length: 29
    Date of creation: 01 Jun 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/123

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    Related research

    Keywords: Foreign direct investment; Capital inflows; Current account balances; Export performance; Foreign investment; Trade integration; fdi; direct investment; host country; foreign investors; capital controls; current account deficits; market size; composition of capital inflows; international investment; capital control; capital outflows; host countries; capital movements; international trade; manufacturing sector; foreign banks; inflation rate; foreign trade; investment decisions; domestic capital; international investors; real effective exchange rate;

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    1. Christian Bellak & Markus Leibrecht & Jože P. Damijan, 2009. "Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries," The World Economy, Wiley Blackwell, vol. 32(2), pages 267-290, 02.
    2. Campos, Nauro F & Kinoshita, Yuko, 2003. "Why Does FDI Go Where it Goes? New Evidence from the Transitional Economies," CEPR Discussion Papers 3984, C.E.P.R. Discussion Papers.
    3. International Monetary Fund, 2010. "The Credit Boom in the EU New Member States," IMF Working Papers 10/130, International Monetary Fund.
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    8. Linda Goldberg, 2004. "Financial-Sector FDI and Host Countries: New and Old Lessons," NBER Working Papers 10441, National Bureau of Economic Research, Inc.
    9. Saul Estrin & Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2009. "The Effects of Privatization and Ownership in Transition Economies," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 699-728, September.
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    13. Ashoka Mody, 2004. "Is FDI Integrating the World Economy?," The World Economy, Wiley Blackwell, vol. 27(8), pages 1195-1222, 08.
    14. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
    15. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," BEA Papers 0012, Bureau of Economic Analysis.
    16. Daniel Leigh & Abdul Abiad & Ashoka Mody, 2007. "International Finance and Income Convergence," IMF Working Papers 07/64, International Monetary Fund.
    17. Estrin, Saul & Hanousek, Jan & Svejnar, Jan, 2009. "Effects of Privatization and Ownership in Transition Economies," Policy Research Working Paper Series 4811, The World Bank.
    18. Jonathan David Ostry & Atish R. Ghosh & Karl Friedrich Habermeier & Marcos Chamon & Mahvash Saeed Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows," IMF Staff Position Notes 2010/04, International Monetary Fund.
    19. Hui Tong & Shang-Jin Wei, 2009. "The Composition Matters," IMF Working Papers 09/164, International Monetary Fund.
    20. Claudio Montenegro & A. Senhadji Semlali, 1998. "Time Series Analysis of Export Demand Equations," IMF Working Papers 98/149, International Monetary Fund.
    21. Cheng, Leonard K. & Kwan, Yum K., 2000. "What are the determinants of the location of foreign direct investment? The Chinese experience," Journal of International Economics, Elsevier, vol. 51(2), pages 379-400, August.
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