Capital Account Liberalization and Foreign Direct Investment

Ilan Noy and Tam Vu ()
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Tam Vu: Department of Economics, University of Hawaii at Hilo

No 200708, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: 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.

Keywords: Foreign direct investment; capital controls; capital flows; capital account liberalization (search for similar items in EconPapers)
JEL-codes: F21 F36 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2007-03
New Economics Papers: this item is included in nep-ifn and nep-reg
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Citations: View citations in EconPapers (20)

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http://www.economics.hawaii.edu/research/workingpapers/WP_07-8.pdf First version, 2007 (application/pdf)

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Journal Article: Capital account liberalization and foreign direct investment (2007)
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