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The interaction effects of financial openness and institutions on international capital flows

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  • Okada, Keisuke

Abstract

This paper examines how financial openness and institutional quality affect international capital inflows, using data of 112 countries from 1985 to 2009. Our main findings are twofold. First, while financial openness and institutional quality do not individually have a significant impact on international capital inflows, their interaction effects are significant. More specifically, the partial effect of financial openness on international capital inflows is increasing in the level of institutional quality. Second, among institutional factors, bureaucratic quality and law and order play an important role in foreign direct investment.

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  • Okada, Keisuke, 2013. "The interaction effects of financial openness and institutions on international capital flows," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 131-143.
    • Handle: RePEc:eee:jmacro:v:35:y:2013:i:c:p:131-143
    DOI: 10.1016/j.jmacro.2012.11.003
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    More about this item

    Keywords

    Foreign direct investment; Capital controls; Institutional quality;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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