Central bank independence, financial openness, and cross-border flows of capital

Constant L. Yayi

Economics Letters, 2023, vol. 225, issue C

Abstract: Countries worldwide compete for international capital and the host country’s macroeconomic stability is among the fundamental factors that matter for foreign investors. In this letter, we specifically examine the effect of central bank independence on cross-border capital flows using the OECD bilateral FDI data over the period 1985–2013. Our results indicate that the intensive margins of outward FDI flows to host countries increase significantly when executive leaders grant greater autonomy to their central banks. Moreover, middle and low-income countries with less overall financial restrictions experience a much greater impact of central bank independence on intensive margins of FDI inflows.

Keywords: Foreign direct investment; Central bank independence; Capital controls (search for similar items in EconPapers)
JEL-codes: E58 F21 F41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:225:y:2023:i:c:s0165176523000678

DOI: 10.1016/j.econlet.2023.111042

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