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Capital Account Liberalization and Foreign Direct Investment

  • Ilan Noy

    ()

    (Department of Economics, University of Hawaii at Manoa)

  • Tam B. Vu

    ()

    (Department of Economics, University of Hawaii at Hilo)

Registered author(s):

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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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_07-8.pdf
File Function: First version, 2007
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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200708.

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Length: 33 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:hai:wpaper:200708
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