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Capital account liberalization and foreign direct investment

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  • Noy, Ilan
  • Vu, Tam B.

Abstract

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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  • Noy, Ilan & Vu, Tam B., 2007. "Capital account liberalization and foreign direct investment," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 175-194, August.
    • Handle: RePEc:eee:ecofin:v:18:y:2007:i:2:p:175-194
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    8. Reece, Christopher & Sam, Abdoul G., 2012. "Impact of Pension Privatization on Foreign Direct Investment," World Development, Elsevier, vol. 40(2), pages 291-302.
    9. Iorio, Francesca Di & Fachin, Stefano, 2014. "Savings and investments in the OECD, 1970–2007: A test of panel cointegration with regime changes," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 59-76.
    10. Folorunsho M. Ajide & Rufus A. Ajisafe & Olabode P. Olofin, 2019. "Capital Controls, Entrepreneurship and Economic Growth in Selected Developing Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(2), pages 191-212, February.
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    12. Christopher Andrew Hartwell, 2014. "Capital Controls and the Determinants of Entrepreneurship," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(6), pages 434-456, December.
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    14. Dilip K. Das, 2010. "Financial globalization: a macroeconomic angle," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 2(4), pages 307-325, November.
    15. Okungbowa Ewere Florence O., 2021. "Cash Flow and Profit Impact on Capital Account Liberalization-Investment Growth Nexus in Nigeria: An Aggregated Firm Case," Economics and Business, Sciendo, vol. 35(1), pages 201-214, January.
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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