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Surfing the Capital Waves: A sector-level examination of surges in FDI inflows

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Abstract

We examine episodes of large gross FDI inflows – surges – at the sectoral level between 1994 and 2009 for 95 emerging-market and industrial countries. We find that surges in the primary and manufacturing sectors are less cyclical and associated with lower macroeconomic volatility than surges in the business and finance sectors. The likely explanation for this result seems to be the expansion of credit associated with these flows. Turning to the determinants of surges, we find that global and contagion factors have a stronger effect in the services than the manufacturing sector; surges in financial sector FDI are particularly contagious in emerging market countries. With regard to domestic factors, we find that (i) high public debt reduces the likelihood of experiencing FDI surges in the manufacturing and trade/transport sector, that (ii) high growth pulls in FDI in the manufacturing sector and that (iii) privatization is strongly associated with FDI surges in the manufacturing and financial sector. Finally, we document a role for capital controls: they tend to increase the likelihood of FDI surges in the manufacturing, other services, and financial sector.

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  • Salvatore Dell’Erba & Dennis Reinhardt, 2011. "Surfing the Capital Waves: A sector-level examination of surges in FDI inflows," Working Papers 11.07, Swiss National Bank, Study Center Gerzensee.
  • Handle: RePEc:szg:worpap:1107
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    References listed on IDEAS

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    Cited by:

    1. Martijn J. Burger & Elena I. Ianchovichina, 2017. "Surges and stops in greenfield and M&A FDI flows to developing countries: analysis by mode of entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 411-432, May.
    2. Gauvin, L. & McLoughlin, C. & Reinhardt, D., 2013. "Policy Uncertainty Spillovers to Emerging Markets - Evidence from Capital Flows," Working papers 435, Banque de France.
    3. Dennis Reinhardt & Salvatore Dell'Erba, 2013. "Las olas de capital no son todas iguales: análisis sectorial de las alzas en las entradas de IED," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 57-92, abril-jun.
    4. Reinhardt, Dennis & Dell'Erba, Salvatore, 2013. "Not all capital waves are alike: a sector-level examination of surges in FDI inflows," Bank of England working papers 474, Bank of England.
    5. Dell'Erba, Salvatore & Reinhardt, Dennis, 2015. "FDI, debt and capital controls," Journal of International Money and Finance, Elsevier, vol. 58(C), pages 29-50.

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