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The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS

Author

Listed:
  • Yuko Hashimoto

    (International Monetary Fund)

  • Konstantin M. Wacker

    (Georg-August-University Göttingen)

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 fi nd statistically signi cant 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 and use a non-parametric test for spatial correlation in the residuals of capital flows.

Suggested Citation

  • Yuko Hashimoto & Konstantin M. Wacker, 2012. "The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 124, Courant Research Centre PEG.
  • Handle: RePEc:got:gotcrc:124
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    Keywords

    determinants of capital flows; information; panel data; risk; SDDS; IMF; FDI; portfolio investment; spatial econometrics;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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