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The Role of Risk and Information for International Capital Flows

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  • Yuko Hashimoto
  • Konstantin Wacker

Abstract

In this paper we investigate whether better information about the macroeconomic environment of an economy has a positive impact on its capital inflows, namely portfolio and foreign direct investment (FDI). The purpose of our study is to explicitly quantify information asymmetries by compliance with the IMF's Special Data Dissemination Standard (SDDS). For FDI, we find statistically significant and robust support for this hypothesis: SDDS subscription increased inflows by an economically relevant magnitude of about 60 percent. We also find evidence of aversion against political and macroeconomic risk as determinants of portfolio and FDI flows anduse a non-parametric test for spatial correlation in the residual of capital flows.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/242.

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Length: 44
Date of creation: 05 Oct 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/242

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Keywords: Capital flows; Capital inflows; Foreign direct investment; International capital markets; Special Data Dissemination Standard; Economic models; host country; international investment; market size; international capital flows; investment decision; host economy; investment promotion; equity portfolios; direct investments; international investors; direct investment inflows; foreign direct investments; tax incentives; foreign direct investors; capital movements; host-country; equity flows; foreign investors; foreign investment; investment promotion agencies; investment choices; foreign capital; foreign investments; foreign affiliates; macroeconomic stability; capital-abundant countries; foreign market; investment decisions; international � investment; import restrictions; host countries; foreign markets; credit rating agencies;

References

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