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Capital account liberalization and foreign direct investment

  • Noy, Ilan
  • Vu, Tam B.
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We examine the impact of capital account policies on FDI inflows. Using an annual panel dataset of 83 developing and developed countries for 1984-2000, we find that capital account openness is positively but only very moderately associated with the amount of FDI inflows after controlling for other macroeconomic and institutional measures. To a large extent, other country characteristics seem to determine FDI inflows instead of capital account policies. Furthermore, we find that capital controls are easily circumvented in corrupt and politically unstable regimes. We conclude that liberalizing the capital account is not sufficient to generate increases in inflows unless it is accompanied by a lower level of corruption or a decrease in political risk.

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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 18 (2007)
Issue (Month): 2 (August)
Pages: 175-194

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Handle: RePEc:eee:ecofin:v:18:y:2007:i:2:p:175-194
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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