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Foreign direct investment, other capital flows, and current account deficits : what causes what?

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Author Info
Fry, Maxwell J.
Claessens,Constantijn A.
Burridge, Peter
Blanchet, Marie-Christine

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Abstract

This paper is part of a larger effort to study the determinants and impact of foreign direct investment. The authors examine flows of foreign direct investment to 46 developing countries to test whether such flows are autonomous or accommodating vis-a-vis the current account and other capital flows. Using Granger-casualty tests, they find that: 1) requirements to surrender exports proceeds to the monetary authorities and the existence of special exchange rates for some capital account transactions reduce the probability that foreign direct investment is independent; 2) the more liberal a country's foreign exchange system, the more foreign direct investment is likely to be independent or exogenous; and 3) foreign direct investment is associated with a larger increase in capital formation when it is independent than when it is Granger-caused by other capital flows.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1527.

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Date of creation: 31 Oct 1995
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Handle: RePEc:wbk:wbrwps:1527

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Related research
Keywords: Capital Markets and Capital Flows; Fiscal&Monetary Policy; Economic Theory&Research; Payment Systems&Infrastructure; International Terrorism&Counterterrorism; Economic Theory&Research; Macroeconomic Management; Banks&Banking Reform; Financial Economics; International Terrorism&Counterterrorism;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Odaki, Mitsuhiro, 1986. "Tests of Granger causality by the selection of the orders of a bivariate autoregressive model," Economics Letters, Elsevier, vol. 22(2-3), pages 223-227. [Downloadable!] (restricted)
  2. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
  3. Ghartey, Edward E, 1993. "Causal Relationship between Exports and Economic Growth: Some Empirical Evidence in Taiwan, Japan and the U.S," Applied Economics, Taylor and Francis Journals, vol. 25(9), pages 1145-52, September.
  4. Alan S. Blinder & Joseph E. Stiglitz, 1983. "Money, Credit Constraints, and Economic Activity," NBER Working Papers 1084, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Pablo Emilio Guidotti & Jose De Gregorio, 1992. "Financial Development and Economic Growth," IMF Working Papers 92/101, International Monetary Fund.
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  6. Cockcroft, Laurence & Riddell, Roger C., 1991. "Foreign direct investment in sub-Saharan Africa," Policy Research Working Paper Series 619, The World Bank. [Downloadable!]
  7. Calvo, Guillermo A & Coricelli, Fabrizio, 1992. "Stagflationary Effects of Stabilization Programs in Reforming Socialist Countries: Enterprise-Side and Household-Side Factors," World Bank Economic Review, Oxford University Press, vol. 6(1), pages 71-90, January.
  8. Montiel, Peter J, 1994. "Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates," World Bank Economic Review, Oxford University Press, vol. 8(3), pages 311-50, September.
  9. Fry, Maxwell J., 1980. "Money, interest, inflation and growth in Turkey," Journal of Monetary Economics, Elsevier, vol. 6(4), pages 535-545, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Brahmbhatt, Milan & Srinivasan, T.G. & Murrell, Kim, 1996. "India in the global economy," Policy Research Working Paper Series 1681, The World Bank. [Downloadable!]
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